Here Come The SDR Bonds

Submitted by J.C. Collins  –  philosophyofmetrics

IMFLogo041115_0Over two years ago now I began a series of articles titled SDR’s and the New Bretton Woods.  The ten post series focused on the SDR and its eventual evolution into an internationally traded asset. There was very little information out there at the time on this future transformation of the IMF’s Special Drawing Right currency, and POM broke new ground on many of the facts, trends, and methodologies behind the transition to a multilateral monetary framework.

Each month more and more information and confirmation of the POM thesis emerges which further validates much of what has been presented to readers for over two years.  The latest validation comes from the G20 Communique from last weekend’s summit in Shanghai.

Item 11 under Issues for Further Action states the following:

“We look forward to the IMF’s report to examine and reflect on the possible broader use of the SDR by July.”

This one statement provides the largest validation yet for POM readers that we are in fact on the correct course with this thesis.  What isn’t clear in the statement is whether July is the deadline for the report to be presented, or when the broader use of the SDR should begin.  Considering the time it takes to decide on changes and implement them, it would be my interpretation that it is only the report which is meant to be completed by July.

What started as a recreational analysis on the Federal Reserve, China, and a new monetary framework, has morphed into a full time obsession which has defined a new path in my life.  The evolution of my understanding and comprehension surrounding this transition has increased by hundreds of multiples. Presenting this information to the tens of thousands of readers out there who are interested in such things has been one of the greatest honors of my life. Continue reading

ARE WE ON THE EVE OF WAR?

Submitted by J.C. Collins  –  philosophyofmetrics

For the first time in a long time I feel concerned and worried about the prospect of war.  The reaction of Saudi Arabia to the Russian intervention in Syria has always been the wild card in the shifting geopolitical power base in the Middle East.  Turkey and Israel, along with Saudi Arabia are the three countries with the most to lose because of a strong alliance between Syria, Iran, Hezbollah, and Russia.

These three traditional American allies have been accustomed to Western support in regards to their own specific regional goals and ambitions.  This support has been so staunch and counterproductive to regional stability that the growing comfort and alliance between Iran and the US should be both confusing and worrisome to Saudi Arabia and Turkey.

On the one hand the US is making agreements with Iran and lifting sanction while on the other hand it is indirectly supporting Saudi Arabia’s and Turkey’s proxy war against Syria. A war which Iran, along with the support of Russia and Hezbollah, are resisting and countering with massive aerial and ground support.

This contradiction is suggestive of another and more complex strategy which may be unfolding in the Middle East.  A strategy which is beginning to look familiar.

Back in 1990 when Saddam Hussein invaded Kuwait the state of the Iraqi dictator’s mind was both paranoid and desperate.  The once American supported leader at some point felt he would have the blessings of the US administration in his regional adventures.  The controversy surrounding US Ambassador April Glaspie’s comments to Saddam regarding having no interest in Iraq’s border dispute with Kuwait, and her later vindication by the release of a memo, is somewhat irrelevant as Saddam obviously felt the support was there.  Whether through direct and straightforward communication or through trickery.

Once Iraq invaded Kuwait the Western press mobilized and a massive propaganda campaign against Saddam Hussein commenced.  The once American ally was isolated on the world stage and suffered one of the worst military defeats in the history of warfare. Continue reading

HERE ARE THE MEMBER BANKS, SHAREHOLDERS, AND OWNERS OF THE FEDERAL RESERVE SYSTEM

Submitted by J.C. Collins  –  philosophyofmetrics

federal-reserve-bank-of-cleveland-1200xx4288-2412-0-218Over the years there has been much written and discussed surrounding the actual ownership of the Federal Reserve System within the United States.  Vast conspiracy theories have been presented and laborious efforts have been undertaken to expose the actual shareholders and owners of the system.  All of which have been met with the human predisposition for fantasy and misdirection.

The purpose of POM has always been to function within well-disciplined research habits and present a factual thesis on the international monetary framework.  Considering the hegemonic role of the US dollar in this system, it is difficult to write about one while avoiding the other.

As such, avoiding the pit falls of the Federal Reserve conspiracy theories and misinformation is at times a futile effort.  No matter how much factual information is presented there are so many which refuse to believe or accept the reality of the human complexity involved in the machinations of the system itself.

I have always made the case that the faults in the system are the externalization of the faults within all of us.  As such, to blame any particular group, or subgroup, for the calamitous results which Federal Reserve monetary policy has had on the world is futile and counterproductive to developing workable solutions to the challenges in this world of man-made things and systems.

While I have ignored information promoting some sort of Jewish or Rothschild conspiracy surrounding the Federal Reserve, the fact remains that there are international banking interests that manipulate and direct the path of the monetary framework which governs the wealth of nations.  But there is no need for secret cabals and intricate conspiracy theories based on misdirection and fabrication.

We need facts now more than ever.

As most readers will know, the Federal Reserve System is made up of twelve regional districts and banks.  This was covered here on POM recently in the post A Hidden Mystery – The 12+1 Symbolism of the Federal Reserve System.

Structure of the Federal Reserve System

Each of the twelve regional Federal Reserve banks are made up from member banks in each region, as well as shareholders and owners.  It is this list which has caused so much discussion and conspiracy surrounding the system itself. Continue reading

A HIDDEN MYSTERY

Submitted by J.C. Collins  –  philosophyofmetrics

Seal2“A Federal Reserve Bank is a regional bank of the Federal Reserve System, the central banking system of the United States. There are twelve in total, one for each of the twelve Federal Reserve Districts that were created by the Federal Reserve Act of 1913.”  – From Wikipedia

The number twelve frequently occurs among ancient peoples, who in nearly every case had a pantheon consisting of twelve demigods and goddesses presided over by The Invincible One, who was Himself subject to the Incomprehensible All-Father.  This use of the number twelve is especially noted in the Jewish and Christian writings.  The twelve prophets, the twelve patriarchs, the twelve tribes, and the twelve Apostles – each group has a certain significance, for each refers to the Divine Duodecimo, or Twelvefold Deity, whose emanations are manifested in the tangible created Universe through twelve individualized channels.”  -Manly P. Hall, The Secret Teachings of All Ages

In the ancient mysteries there is a ritualistic procession which describes the path from confusion and despair to enlightenment and exultation.  This process places the individual, or groupings of individuals, such as nations, on a journey of hardship and suffering, only to come out the other end liberated and illuminated.

It is perhaps symbolic of the birth into the material world and onset of suffering and confusion which ensues.  When the righteous path is followed through life the spirit is able to rise up out of the ashes of despair and ignorance, and become one with the universal power of creation.

Or so the story goes.

In the song Carry on Wayward Son, the band Kansas sings:

Once I rose above the noise and confusion, just to get a glimpse beyond this illusion, I was soaring ever higher, but I flew too high.”

Patience with the process of initiation in this life is a key element of the journey itself.  When we reach too high, and too far, we falter and fall victim to the entrapments of the false self.  Most stumble through this life never realizing that life itself is an initiation.

When we come to understand, and accept the reality that life is an initiation, the pieces begin to fit and purposeful meaning fills our hearts and minds with a quiet wisdom which does not need to be spoken. Continue reading

ÜBER COOL

Submitted by J.C. Collins  –  philosophyofmetrics

The World Economic Forum is publishing a study which states that 5 million jobs will be lost to advances in artificial intelligence, robotics, genetics, and other advancements by the year 2020. This study correlates well with other policy papers by some banks and international institutions which suggest that 80% of human jobs will be replaced by 2030 or 2040.

There are some obvious questions which arise. What will replace these lost jobs?  How will humans earn a living when there are no jobs to replace the ones which have been taken over by Robbie Robot? And how does this connect to the multilateral monetary transition?

It is estimated that there are very few jobs which cannot be replaced by the merging of AI and robotics.  When we add in the advancements in genetics, a disturbing trifecta of transhumanism emerges.  But I digress.

The human fields of labor and study which will be replaced include medicine – with doctors, especially general practitioners being hit the hardest, engineering, basic movement labor functions, office and clerical work, machine operation – such as autonomous machinery in mining and other operations, technicians – machines fixing machines, and numerous other fields.

The technological advancement which is taking place serves as a method of consolidation.  There are other areas where a trend of consolidation can be defined and studied.  The obvious one for most readers here is the consolidation of the international monetary system through re-balancing and implementing a multilateral monetary framework.

The globalization of central banks which will take place as a part of this transition will serve to consolidate the fiscal policies of all countries and regions under one supra-national authority.  The end goal of this transition is the probable reason why there is so much confusion and obfuscation regarding the methodology of the process itself.

Another area of consolidation is the increasing spread of socialism.  Here we have two opposing positions, one represented by democracy and capitalism, and the other fascism and communism.  All blending and consolidating from different directions into the one emerging socialist governance framework.

So here we have three paths of consolidation which have been clearly defined and widely discussed everywhere from academia to alternative news and opinion sources.  It can be argued that all three feed on one another and are connected through an underlying current of socialists’ machinations. Continue reading

HOW CHINA IS DELEVERAGING FROM THE USD

Submitted by J.C. Collins  –  philosophyofmetrics

PandaOn December 29, 2015, in the post The Myth of China Dumping US Dollars, I wrote the following in regards to the past accumulation of USD by the People’s Bank of China:

“The PBoC continues to keep the renminbi weak against the dollar for the purpose of purchasing US dollars which are accumulated by Chinese business and exporters.  The People’s Bank of China borrows renminbi in order to purchase these dollars.”

“Once purchased, the PBoC cannot sell renminbi as it would be inflationary. Same as the US with dollars.  In order to prevent excess inflation, the PBoC issues new debt and raises the required reserve ratio of capital held by Chinese banks.  This has led to the increase of domestic debt within China.”

This increase of domestic debt amounts to the large printing of renminbi which was used to purchase US dollars.  This is in essence the forming of a bubble within China.  This bubble debt was used to further modernize the country and build infrastructure and “ghost cities” which will be used to house a growing middle class as China migrates 100 million of its rural population into these cities between now and 2020.

The POM article continues:

“The effect of all this is that the PBoC owes renminbi which it sold at low valuations, based on the exchange rate, and owns dollars at high valuations, based on the same exchange rate.”

The article further explains why China could not simply “dump” US dollars as a method of financial warfare on the United States.  That is the most misunderstood part of the China/America dynamic.  The People’s Bank of China prints/borrows RMB to purchase the dollars which have accumulated in its foreign exchange reserves.

In order to reduce these USD denominated reserves, the PBoC has to sell USD from its foreign exchange reserves to buyback RMB from circulation.  As the Federal Reserve increases interest rates, the demand for dollars increases, at least initially, and it is expected that RMB will depreciate as investors fear a capital flight from China, or other emerging markets. Continue reading

DON’T PANIC JUST YET!

Submitted by J.C. Collins  –  philosophyofmetrics

Don't PanicWith the New Year well underway we are beginning to witness the next phase of volatility which will accompany the rebalancing of the international monetary system.  This recent batch of volatility can be associated with the normalization of monetary policy by the Federal Reserve.  Though most have come to the conclusion that there will in fact be this volatility, many do not consider that it has been accounted for, and a focused strategy has been developed to allow for its occurrence.

The international monetary and financial systems will wax and wane through the year as the Fed incrementally increases interest rates and China continues its transition to a consumer based economy.  Each episode of decreases and increases will be met with equal portions of despair and euphoria.  Commentaries and conclusions will be quickly drawn that the collapse is near, or that we are on the verge of a new bull market.

The next few years will not be for the faint of heart, but it is important to keep our wits about ourselves and be patient and knowledgeable about the transition.  The world monetary framework cannot change direction by ninety degrees.  The arc of transformation will take many more years and a final point of arrival is unlikely to ever be realized, as the evolution of all things, whether natural or manmade, knows no beginning or end.

The imbalances in the monetary and financial frameworks are the number one challenge for all countries and economies.  This imbalance is personified on one extreme by America’s extraordinary trade deficit, and on the other by China’s ridiculous trade surplus.  Both are equally as damaging. The shifting of wealth and resources to balance these deficiencies will cause vast and varying degrees of financial and monetary instability.

But like China expanding the trading band of its currency against the USD to account for these temporary and transitory inflection points (of which the lowering of the daily reference rate is but the beginning), the international framework has been re-engineered to absorb this erratic motion.  Occasional tweaks will have to be made at opportune times, but the trend is clear. Continue reading

HOW AMERICA LOST ITS SOVEREIGNTY

Submitted by J.C. Collins  –  philosophyofmetrics

American PigJust after World War Two the United States had a massive debt-to-GDP ratio of over 140%.  Today’s debt-to-GDP ratio of 104% seems paltry in comparison. But along with a huge debt-to-GDP ratio after the war, the US also had one of the largest trade surpluses in the world.  Much like China does now.

The difference, China’s debt-to-GDP ratio today, for government debt, is around 42%, with a balance of payments surplus of over $60 trillion. This puts China in a very strong position within the multilateral monetary transition which is taking place.

At present time, the US has a large trade deficit, with China being the biggest creditor, and a high debt-to-GDP ratio.  The ability of the US to push its debt-to-GDP ratio down after the war had a lot to do with its strong balance of payments position at the time.

Also, the status of the dollar as the international reserve currency gave America the ability to print large amounts of money to fund production and increase exports to a world which was rebuilding.  The Triffin Paradox defined the problematic and systemic issues which would arise from such an arrangement.  The use of the domestic currency of one specific country, here being the USD, would cause deflationary pressure back home and force the central bank to continue printing money to meet the international demands brought about by the reserve currency status.

The chart below defines how the US debt-to-GDP ratio decreased after the war on the back of robust American production and huge exports.  But around the early 1970’s, when the original Bretton Woods agreement was ended by Nixon, the American debt-to-GDP ratio began to increase once again.

US Histrocial Debt to GDP

There are several reasons for this, but it mainly had to do with the US beginning to build a trade deficit as more and more dollars accumulated in the foreign exchange reserve accounts of central banks.  The trade agreements which developed from this US debt accumulation forced western companies to move production to the creditor nations.  In this particular circumstance, China was becoming the largest American creditor, and as such, many American factories were moved to China to offset the dollar inflation which was being exported. Continue reading

CANADA SET FOR 2008 STYLE COLLAPSE

Submitted by J.C. Collins  –  philosophyofmetrics

Bank-of-CanadaThings just went from bad to worse for Canada.  Along with a continuing collapse in crude prices, and a teetering real estate market, the Federal Reserve in the United States is set to increase interest rates on December 16th for the first time in ten years.

Traditionally the Bank of Canada would match interest rate increases in the US with its own increases.  The challenges which Canada faces by increasing interest rates is that the country holds the title for the highest level of private debt in the world, as well as one of the most overvalued real estate markets.

Any rate increases by the Bank of Canada will send debt management costs into the stratosphere, causing a collapse in real estate markets over an extended period of time.

As such, Canada is faced with two choices.  One, match the rate increases in the US and suffer the economic fallout.  Two, don’t match the rate increases.  The latter of the two choices will cause the Canadian dollar to depreciate even further against the US dollar.  Neither choice is great.

It appears we may have been given an answer on what direction Canada will go.  A policy paper titled Framework for Conducting Monetary Policy at Low Interest Rates was published today by the Bank of Canada.  It outlines the macroeconomic policies which the Canadian central bank will have to embark upon in an environment of low interest rates.  This is a clear signal that the Bank of Canada intends on not matching the interest rate increases by the Federal Reserve. Continue reading

AFTER THE SDR ANNOUNCEMENT – NOW WHAT?

Submitted by J.C. Collins  –  philosophyofmetrics

dollar-and-renminbi-rollsA 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

GET OUT OF GOLD NOW WHILE IT’S HIGH

Editors Note: I have tremendous respect for J.C. Collins.  However, in regards to his adamant conclusions on the subject, I would be remiss not to note, that despite a considerable market correction, Gold remains the best performing asset class of the New Monetized Millennium, by a country mile.   J.C. can be the first to call me when that changes.

Submitted by J.C. Collins  –  philosophyofmetrics

Dump GoldAs the price of gold continues to get hammered the purveyors of fear porn have become acutely quiet on the reasons for the collapse.  The script of $10,000/oz gold has likely ran its course as the larger segment of the population no longer believes the grandiose script of imminent dollar collapse and the end of the financial world as we know it.  The losses which have accumulated since 2011 for those heavily invested in gold are massive and the wealth bleed continues every day and week.

As of this writing the price of gold is $1077/oz and dropping.  The last high was in August of 2011 when gold was $1900/oz.  That is a 17% drop in the price of gold in just 4 years.  Keep in mind that this drop in price has transpired at the same time that so many alternative analysts and fear based writers have been telling you that gold will skyrocket into the atmosphere.

So how did so many get it so wrong?

Whether the fear based promotion of huge price increases was an honest mistake or outright propaganda to sell precious metals is somewhat irrelevant at this point.  The reality is that the price of gold is collapsing and astute investors would do well to get out now and only get back in when the market is near a bottom.

There are many reasons why the price of gold will continue its downward trajectory.  The most obvious is that the expected inflation from QE never materialized and the purpose of using gold as a hedge against inflation has become somewhat redundant and non-consequential in the existing deflationary environment.

The other argument was that the US dollar was going to collapse and precious metals would act as the only vehicle by which wealth could be retained.  The fact that gold has been achieving the opposite of wealth retention for investors is lost on the promotors of faulty analysis, as well as many who refuse to believe that they have been subjected to a narrow minded and often contradictory script of irrational fear. Continue reading

DE-FANG THE FEDERAL RESERVE

Submitted by J.C. Collins  –  philosophyofmetrics

Sometimes the complexity and level of artisan skill required to engineer the multilateral monetary framework is staggering.  The socioeconomic and geopolitical shifting which takes place behind the closed doors of think tanks and international institutions would make for intriguing spy-like novels on par with the tales of John le Carré.

Such stories would be reminiscent of the old movie the House of Rothschild where skullduggery and manipulation were used to increase the sovereign debt of European nations.  The leaders and Kings of Europe refused to borrow money from Mayer Rothschild and in turn Napoleon conveniently escaped from exile on the Island of Elba in February of 1815 and began to wage war upon Europe again.

The allies formed the Seventh Coalition to fight against Napoleon and quickly diminished their reserves and loan capacities before finally turning to Mayer Rothschild for additional funding to continue the fight.  Once the Rothschild loan was secured Napoleon was defeated at the Battle of Waterloo and the tide of history was changed for ever.

The Federal Reserve should be looked upon as the Napoleon of the 20th Century.  It was used to fund the growth of the military industrial complex and expand the central banking system all around the world.  And like Napoleon, the Federal Reserve performed its function as strategized and will now be modified to fit within the larger macro multilateral framework which it helped create.

The evolution of the Federal Reserve is complicated and would require almost a book length discourse to fully grasp the details and policies which have grown and shaped monetary and fiscal policy both within the United Stated, and throughout the world. Continue reading