I have long wondered “what” exactly the black swan event would be that tips the global financial system from its tight rope. I/we don’t exactly know what went on behind the scenes to prompt China to publicly call for a new reserve currency and for a new world order that “de Americanizes” the world…but something has. Is it because China has done the math and come to the conclusion that no matter what happens with the debt ceiling that the U.S. simply cannot make good on its promises? Have they been told that no more gold will be delivered? Or have they purchased gold and the delivery time has been extended too far? Have they been prompted by other countries collectively to pull the plug because they are fed up? Have they purchased an amount of gold that they deem to be “enough?” Do they see the U.S. “weakened” enough?
There are many more possibilities and questions but the point is this; China has now publicly spoken of stripping the U.S. of the privilege of issuing the worlds reserve currency. From a financial standpoint I know of nothing, NOTHING as big as or more important to the future of the U.S. than having this privilege. If this proposal by China does come to fruition, “our” world is going to change. It will change BIG time and it will change for the worse, MUCH worse. If you think this through it means that our trading partners can “just say no.” “No” to accepting dollars as trade for their real goods which are shipped to the U.S. They can instead ask for something “real” in return for their trade. The problem is that we no longer make much of anything that is real and instead we get fat and lazy knowing that we could trade by simply creating and exporting “dollars.” As I have written many times before, I called this arrangement the “never pay model” where we never actually settle up…we just promise and keep sending more and more dollars. It looks as if China wants to change the game to one where we actually do have to pay with something, anything…but dollars!
Inflation will come back home to roost where it was originally created in the first place. I have had several people ask me to explain this and I will try from 2 different but similar directions. First, if the dollar loses its reserve status then demand for dollars will drop. This drop in demand will not nor can be met with a lower supply because the Fed must keep the asset markets from deflating. Internationally, dollars will be sold because they will no longer be needed to settle trade between non-dollar entities. This selling of dollars will put “pressure” on its price (purchasing power) versus other currencies. As an example, dollars will be sold for Euros, Rubles, Yuan or whatever which will create demand for these other currencies at the expense of the dollar. Basically, it will take more dollars to buy foreign goods or to buy foreign currencies to make settlement with. Inflation!
Another way to look at this is that dollars will finally “come home.” As dollars are “sold” they will come back to our borders in the form of purchasing what we have to sell. More dollars will be sloshing around within our borders… (more dollars chasing the same amount of goods)…again, inflation. Yes, the Fed will be overwhelmed in their efforts to sop up the supply of existing dollars presented by foreigners at our borders. The previously “exported” inflation will finally come back home to where it was originally created.
As my title implies I believe it is all coming to a head and China is finally emboldened enough to pull the plug. We will surely have an interesting week ahead watching the Washington DC circus acts leading up to a debt ceiling increase. We also have quite serious potential unrest as veterans have taken barricades from memorials and placed them outside of the White House while truckers have descended Washington at the same time. Police in riot gear and even snipers on roof tops have been positioned. This could get ugly quickly but this is only a small piece to the puzzle. The debt ceiling issue is another piece albeit somewhat larger. China and what the rest of the world decides to do on the other hand is huge and by far THE biggest piece of all. “When,” not if the dollar is finally replaced as the reserve currency will be THE biggest financial event of our lifetimes and the biggest event since 1944.
No matter how this gets spun it will NOT be pleasant for the U.S. There is no upside for the U.S. and our standard of living will decline. The only question that will remain is “by how much?”
People in the US don’t even know what third world means. They cannot fathom it possibly happening to them. Most people in the US don’t have the savings to prepare for the worst, they just hope for the best. If you cannot help yourself, why not vote Democrat and hope for the best. Its mostly working so far. Just ask the typical Dem and they will say that our government is rich. You cannot convince them differently. And, the worst part is that they are the majority. Economic collapse is inevitable.
gee, glen. thought the pubs were the majority in the house and causing all the bs. guess , being one of the stupid rich you should know. learn a lot listing to stupid
no food fights allowed on my blog!
I would say there is coming a momment in time where there simply is no more physical gold at the US spot price. They can’t scare it out of anyone using FAKE ETF.
At that point, China will take all their worthless US dollars sitting in their coffers and start moving the price of Gold up to get rid of the dollars and continue obtaining the real gold. At that time, the price of Gold in US Dollars will go through the roof. But still, who will trade physical gold for a worthless piece of paper? PMs will become currency independent of any mans BS promisory note. I suspect this will get rather ugly because desperate people think their value resides in thier bank account balance.
But, with Fukushima happening, time may be shorter then anyone knows. And if that disaster happens, Gold will become worthless as well. And then at that time, finally, some of us may learn, that the gift of Life is the most precious thing all of us where given.
Peace
the last sentence is very correct.
The Chinese are calling us a dysfunctional family. We are bickering over a duly passed law while our currency status as the world trade exchange medium is being shoved aside. The Fed is illegally aiding and abetting China’s accumulation of gold at an artificially low price by using JPM to float illegal naked shorts. Appeasement does not solve the problem but simply kicks the can down the road. China will come to Bretton Woods II as the player with the cards, Treasuries, gold and production, and we will be sitting there with golden egg on our face owning up to the fact that Fort Knox is empty. And food fights will take on a whole new meaning.
Meanwhile those who hate Obama and say they love their country will never get to the bottom of the situation. And the opportunity to design a new world order will be left to the sons of the same oligarchs who created this one in 1913.
yes on all counts
Dishonest money, dishonest practices…..
N.Y. Fed Moves to Seal Documents in Ex-Bank Examiner’s Suit
By Jake Bernstein, ProPublica
A federal judge in Manhattan is pondering whether to grant the request of the New York Federal Reserve to seal the case brought by former senior bank examiner Carmen Segarra.
As reported by ProPublica last week, Segarra filed a lawsuit against the New York Fed and three of its employees alleging she had been wrongfully terminated last year after she determined that Goldman Sachs had insufficient conflict-of-interest policies.
On Friday, the Fed asked for a protective order to seal documents in the case as well as parts of the complaint. In a letter to U.S. District Judge Ronnie Abrams, New York Fed counsel David Gross said the information should be removed from the public docket because it is “Confidential Supervisory Information,” including internal New York Fed emails and materials provided to the Fed by Goldman.
“These documents show that at the time (Segarra) left the employ of the New York Fed, she purloined property of the Board of Governors of the Federal Reserve System,” Gross wrote, citing Fed rules that prohibit disclosing supervisory information without prior approval of the Fed.
Gross argues that the Fed’s obligation to keep bank supervisory records secret outweigh the public’s right to know. “The incantation of a 2018 public right to know’ cannot ever be a license to discharged employees that they may violate Federal law simply by filing a complaint in Federal court,” Gross wrote.
Segarra and her lawyer could not be reached for comment.
While Abrams considers her decision, Segarra’s lawsuit and appended documents have been removed from Pacer, the online records system for federal courts. The complaint and related documents are available via links in ProPublica’s story and have been published elsewhere online.
Gross states in his letter that Segarra previously made a $7 million settlement offer. The Fed rejected it.
The New York Fed has historically been one of the most opaque financial regulators and maintains that it is not subject to the Freedom of Information Act because it is not a public agency.
http://www.truthdig.com/report/item/ny_fed_moves_to_seal_documents_in_ex-bank_examiners_suit_20131014
par for the course.