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  • The CBs arrive at the event horizon

    The Central banks, especially the FED have painted themselves into a corner. Their actions have doubled the cost of everything in the West, Competition from low-wage markets like China, India, Brazil, Viet-Nam, et al has gutted the western economies. The Western CBs have bought up EVERYTHING to maintain the price structure of the financial markets.
    "By 2017, the Bank of Japan was the owner of three-quarters of Japan’s exchange-traded funds, becoming the major shareholder trading in the Nikkei 225 Index."
    "The Swiss National Bank is expanding its quantitative easing policy by including international investments. It is now one of Apple’s major shareholders, with a $2.8 billion investment in the company."

    The CBs have tried to hold up the value of all western markets. There was much speculation as to whether or not, the FED was going to throw in the towel. They can raise rates and bring down much of the economy BUT, they will attract investment capital. I have NO idea where this capital will come to rest when the whole economy blows.
    There has been endless speculation as to whether or not they will actually raise rates.
    3/22 Fed raises rates 25bp – where are we in the market cycle? – CNBC
    3/22 U.S. Fed may hike rates up to four times this year – Bloomberg

    The FED is a slow learner. They stuck with QE in spite of the fact that it benefited the upper loop at the expense of everything else. US GOV wanted QE to inflate away the burden of debt service, hoping to get price inflation from currency inflation. Nowhere in the rule book did it mention that you can't get price inflation without a WAGE-price spiral.
    The FED is taking baby steps but, it is raising. The BIS insists that the CBs must stay the course. Super Mario seems to have misplaced that memo.
    The 2008 rescue was a temporary measure that was doomed to failure. It had no way to address the disparity in wages between the East and the West. It had no way to address the disparity in the cost of finance between the East and the West. As transportation and communication got ever-more cheaper, the imbalances got ever-more strained.
    The corporatocracy depressed wages to maintain profits. This was short-sighted because they impoverished their customers.
    The Central Bank Bubble: It Will Be Ugly - Gold Telegraph

    3/22 White House to penalize China for intellectual theft – CNBC
    Chinese apply for more patents than U.S., Japan, Korea, Europe ...
    Dec 6, 2017

    3/22 Twitter CEO says bitcoin will become world’s ‘single currency’ – Coin Telegraph
    3/21 Bitcoin proving to be nothing more than a con – NY Post

    3/21 U.S. mortgage refinancing drops to nine-year low as rates rise – Bloomberg No problem, the hot money pays cash.
    3/21 U.S. starter homes scarcer, pricier, smaller, more run-down – Bloomberg


    • Creating new money proportionate to the growth in prductivity

      If money is pumped in to the economy via the upper loop, the bankers and speculators are happy. If money is pumped into the economy via the lower loop in return for productive work, the welfare of the general population improves. Ben Franklin said that the colonies just printed up whatever money was needed to keep the economy circulating. Adolph Hitler instituted a program that paid for civil works and other productive enterprise. Just as Ben got a war, Adolph got a war.
      Socialism never works because it kills motivation. The system used by the colonies paid people to work. You still had to be motivated. If a top-down banking system steals half of the proceeds of your labor, this too kills motivation.
      With our current system, the money is pulled away from the producer and, locked away in financial instruments. In recognition of this fact, there are proposals for a universal basic income. The State and the bankers only have whatever money they can squeeze out of the productive loop. This has crashed and, they need to print up gobs of money to make up the difference. The lower loop just can't afford the upper loop. The UBI would reflate the lower loop so that the State and bankers could siphon off enough money to keep them going.

      OK, how much money should be printed to reflate and maintain the lower loop?
      "In the early 19th century Guernsey was mired in poverty with narrow mud roads, little employment and a declining population. The island had a debt of £19,000 which required the payment of interest amounting to £2,400 out of an income of £3,000 per annum. The Guernsey government printed £6,000, of which £4,000 was used to repair the infrastructure. Each year more money was printed which was used in maintenance and other social improvements such as colleges of education. By 1958, over £542,000 had been printed yet the island did not undergo any inflation."

      "The proposal here is that currency should be directly related to the Balance of Payments (BOP), i.e. the productive capacity of the nation. Britain’s BOP was nearly 6% in deficit in 2016. For many decades it has been in deficit and yet, for the reasons mentioned above, the £Sterling has been so inflated that it is less attractive to manufacture in UK as compared with making in China or the East. If in the past, £Sterling had fallen in direct relationship to the nation’s productive capacity, the price of manufactured goods would have remained competitive and businesses would have invested in UK industries. If printing money were carried out to an uncontrolled level, the nation would be unable to afford to import essentials"

      "Printing money for investment cannot be carried out indiscriminately and the establishment of a ratio between the productivity of a nation and the amount of capital growth would mean that as money was printed, the currency would be devalued. Devaluation would have the effect that inflation would rise axiomatically which would reduce imports as their costs rose. This would provide a further discipline to limit the excess printing of money."
      Why it's time we manufactured money as we manufacture goods - Director of Finance Online


      • GS, the overlord,,, dollar shortage in Europe

        "Virtually every position in the key financial markets in Europe and American are all coming from Goldman Sachs. There is something seriously wrong. Such people do not leave the highest paying jobs to work for peanuts.
        There has NEVER been any investigation of former Goldman Sachs people who take strategic government positions and alter policy only to leave. Robert Rubin ushered through the repeal of Glass Steagall and then resigned. Hank Paulson saved AIG whose default would have taken down Goldman while he eliminated two top Goldman competitors over who there was the authority to bailout – Lehman and Bear. There was no authority to bailout an insurance company operating in London no less to skirt US regulation
        Yet the burning question is simple. Is Goldman or its people going just too far? Their “former” people seem to be controlling the world financial system.
        It seems like it’s only a matter of time before the conspiracy theories finally give up on bashing the Rothschilds and open their eyes to who really has the power to be a mover and shaker."

        "This is the same reaction we should expect from Brussels and it is a serious threat to all member states to allow Brussels to create its own standing army. They will follow the same pattern and no doubt one day invade a member state that attempts to leave."

        "One billionaire can purchase most of the government. The billions of dollars that the US taxpayers give to Israel each and every year purchases the rest of the government. The military/security complex, the energy, mining, and timber industries, the pharmaceuticals, agri-business, Wall Street, the big banks and all the rest make American democracy a hoax."

        "European lenders are short of dollar liquidity, according to a review by Raiffeisen bank. The analysts stress that the US currency is moving back home and that is causing the deficit.

        Toughening of US monetary policy, along with a sharp increase of the key rate, has ratcheted up the situation, according to McKinnon. The US Fed has been shortening the balance, withdrawing dollar liquidity out of system, pumped up after the financial crisis."
        Yep, America is actively trying to crash the Euro..

        3/22 White House slaps China with tariffs, “first of many” – CNBC

        China opens a Yuan denominated oil futures at the end of March. America rushes to pile on a bunch of new tariffs, at the same time.
        Imagine 2 people standing in a pool of gasoline,,,, both throwing lighted matches at each other.
        Mr. Welby writes about consumer debt,

        3/22 Funding stress contagion spreads – European banks 11-month lows – Zero Hedge That's what happens when the FED sucks the dollars out of Europe.


        • stuffing money down a rat hole

          The West, Japan, and Australia had a high standard of living. The low-wage countries pulled the rug out from under their wage structure. Automation did the same thing. The rich sucked out the money from the majority using regulatory capture. BUT, the rich can't actually spend this money. They circulate it round and round in financial instruments.
          As the whole world grinds down (or up) to a global mean wage, there is little in the way of profit margins to keep the corporatocracy profitable.
          The West slides down to a survival economy. Formerly, 68% of the U.S. economy was driven by the consumer.

          The "elites" in the corporatocracy demand ever larger bailouts. They demand ever stronger control of the State. Goldman Sachs is trying to survive by squeezing the State ever harder. The pillage of Greece is a perfect example. When Greece could not service it's debt to private banks, Germany made good on the debts and magically made the German GOV a debt collector.
          The world slides down to a survival economy. The State tries to make up the difference by injecting money into the upper loop. This has done nothing for wages so, the whole consumer economy just keeps falling.

          Meanwhile, the State incurs enormous debt.
          "In such a situation, Keynesian economics states:

          “Government policies could be used to increase aggregate demand, thus increasing economic activity and reducing unemployment and deflation. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.”

          Keynes’ was correct in his theory”

          In order for government deficit spending to be effective, the “payback” from investments being made through debt must yield a higher rate of return than the debt used to fund it."
          The problem is that government spending has shifted away from productive investments that create jobs (infrastructure and development) to primarily social welfare and debt service which has a negative rate of return.

          According to the Center On Budget & Policy Priorities, nearly 75% of every tax dollar goes to non-productive spending. "
          As long as the State injects money into the upper loop, it accomplishes noting positive for the economy.
          The Debtor's Prism | RIA

          Ok, so how much is the State injecting? How about $72.8 billion in 24 hours.

          This unfolding trade war is still something of an enigma at this point.

          Here are a series of cute graphs that show pretty well just where we are.

          3/23 China intervenes in stock market after tariffs trigger rout – Bloomberg
          3/23 Asian stocks slide as trade tensions escalate – CNBC

          2 deaf men shooting at each other in a dark room.
          Last edited by Danny B; 03-24-2018, 12:03 AM. Reason: ThE usual


          • Tariffs,,, rising dollar,,, India and NPLs

            The Tariffs are already creating problems. One that hasn't surfaced yet, "Trump's tariffs would automatically trigger penalties against the U.S. in the World Trade Organization (WTO), and might even lead to the WTO's collapse, ..."
            These organizations—the Consumer Technology Association (CTA) and the National Retail Federation (NRF)—represent more than 40 trade groups.... think that the tariffs are going to backfire.
            "Jane Foley, Senior FX Strategist at Rabobank suggests that a trade war between the world largest economies would create a whole catalogue of secondary effects that are set to resonant through most of the global economy and as a consequence they see several other currencies as more vulnerable than the USD over the medium-term."
            No kidding. This is a war on the Euro.

            Martin Armstrong
            Bloomberg has reported that dollar bulls are nearly extinct down to just 2.3 %. The majority, which is always wrong, are all focused on the nonsense of the budget and the current account deficits.
            When you actually correlate the Balance of Payments with the dollar, something amazing emerged. The dollar rises with the balance of payments going negative. Gee whiz! That is against all perpetual bear’s reasoning.
            The biggest trade deficit of the USA is not with Europe, but China, who just so happens to be the LARGEST investor in US government bonds. That means they collect the lion share of interest expenditures.
            The trade deficit with China (with includes interest expenditures that flow to China) stands at 123,676 billion
            I have been warning countless times that the Balance of Payments is by no means simply TRADE. It includes all flows of capital outward. That includes interest.

            The S&L crisis was caused by bankers making good ol boys loans to their cronies. 1,000 went to jail. New laws mean that they are no longer at risk of prosecution if they repeat this.
            India is famous for corruption.
            "the majority of the country’s financial institutions are government owned, with almost every public bank holding overwhelming percentages of NPAs(Non-Performing Assets). That being said, if these public sector banks faced bankruptcy it would mean a nationwide credit crunch worth 70% of the entire banking system."
            "India’s infamous crony socialism has seen the federal government repeatedly bail out irresponsible, yet politically connected, industry giants after every cycle of bankruptcy, only to again recapitalize them later on."

            3/24 Here’s how China could really hurt Trump in a trade war – Fortune
            3/23 US stocks plunge, now in correction – CNBC
            3/23 China responds to Trump tariffs with list of 128 US products to target – CNBC
            3/23 Tariffs – reverse gear in the economic transmission – SWP Cayman
            3/23 Rising U.S. bank funding costs: five pressure points for markets – Reuters
            3/23 Half last week’s record stock inflows just got yanked back out – Bloomberg
            3/23 High-yield outflows begin to take a toll on new issue market – Bloomberg

            This is called volatility.
            3/24 Trade swords sharpened, belly flop reporting – Mish
            3/23 China intervenes in stock market after tariffs trigger rout – Bloomberg

            The stock market peaked a while back. This tariff deal will probably send the markets down pretty fast. It is hard to say just when the fall will take a break.
            The U.S. debt is growing by $trillions. Just how long can this go on before bond buyers abandon sovereign debt?
            3/24 Edward Snowden: public ledger is bitcoin’s big flaw – Coin Desk
            3/24 Bitcoin could become illegal almost everywhere – Science Alert

            The Venezuelan Bolivar has lost 99.99% of it's value, Venezuela knocks three zeros off ailing currency amid hyperinflation | Gold Anti-Trust Action Committee
            3/23 Should Democrats embrace the center or abandon it? – NY Times I vote for mass execution.
            One from the doomers, Evolutionary dead-ends – Collapse of Industrial Civilization


            • The history of debt is the history of war

              A couple of thousand years ago, Rome debased their coinage to pay for wars. A few hundred years ago, Various states sold war bonds ahead of time to pay for wars. In 1694, the Bank of England was created. Central Banks were originally created to finance wars. The wars could be fought on credit and, paid for afterwards.

              In 1907, America had a banking panic. The NYC bankers demanded that a central bank be created to avoid further bank meltdowns. 1913, we got a Central Bank. It's charter allowed it to make overnight loans for good collateral. Definitely, a good idea.

              1917, America entered WW I.

              "The Federal Reserve supported the war effort in several ways – it helped finance wartime spending, fund our allies, embargo our enemies, stabilize the ... The Reserve Banks agreed to purchase Treasury bills at an interest rate of 3/8 of a percent per year"

              The Federal Reserve System formally committed to maintaining a low interest rate peg on government bonds in 1942 after the United States entered World War II. It did so at the request of the Treasury to allow the federal government to engage in cheaper debt financing of the war.

              After World War II, monetary policymakers had retained the conventional view that inflation arose from an excessive extension of credit, which through speculative excess raised prices of goods and assets to unsustainable heights. Inevitably, deflation would follow inflation when the credit-market bubble burst.

              So, the CB inflated everything to accommodate the war-mongers. The roaring 20s were roaring because of the monetary inflation. This bubble burst with the 1929 market crash. The FED lowered the interest rate to 3/8 of a percent to finance the war. The State was very happy with this and demanded that it be maintained for 6 years after the war.

              The history of the Federal Reserve is a history of war financing at the orders of the Treasury. The runup to the crash of '29 was not from the CB creating too much credit. It was the banks and brokerages that created the mountains of credit in the form of market leverage.

              Bernanke claimed that the FED had allowed the '29 crash by not jumping into the markets with tons of liquidity to rescue the system. He has had the opportunity to do a rerun of the '29 scenario. He pumped in gobs of liquidity to save the system. The "system" in 1929 was plagued by speculative excesses. Same as the system starting with the 2000 crash. He pumped in even more liquidity, not comprehending that it would create even more speculative excess. True, Greenspan was the one who got the party started.

              Greenspan remarked that the FED was NOT independent. It was the State that continually fostered inflationary policies. The welfare-warfare State is quite expensive.

              Previous to 1944, America could only make wars relative to it’s economic and credit base. After the Bretton Woods agreement, America could make wars based on the economic base of the entire Western world. When that began to fall apart, we finagled the petro-dollar scheme to continue war finance.

              The gold supply from mining grows about 2% a year. The economy grows about 2% a year. The economy generally has just as much money as it needs. The money-supply growth on a gold standard is FAR too low to finance wars. It is far too low to make the bankers happy. The lower loop of the economy is perfectly willing to do actual productive work to make a living. The hordes of people who rent out their money want no part of that. The State consumes a big part of this rented money and, always eventually defaults.

              The Federal Reserve We Need


              • FED, trade war, CBs, Stockman

                "The first use of the direct purchase authority came in March 1917, when the Reserve Banks, quite reluctantly, bought $50 million of certificates of indebtedness directly from the Treasury"
                "the US did join the war in April, 1917"
                That's all you need to remember.
                The current focus on the FED has become intense because Powell is trying to do a major balancing act with FED GOV bloating the budget like a dead cow carcass. The FED wants to reduce it's balance sheet at the same time. Any weakness in the bid-to-cover ratio in the sovereign bond market
                would have the treasury banging on the doors at the FED. The FED was buying all left over notes.

                "Deutsche Bank (DB) dropped 13% this week to a 15-month low. DB is now down 28% y-t-d. European banks (STOXX) sank 5.0% this week. Hong Kong (Hang Seng) Financials were down 4.9%. Japan's TOPIX Bank index fell 3.3%. In the U.S., banks (BKX) were slammed 8.0%, the "worst loss in two years." The Broker/Dealers (XLF) fell 7.3%."
                So, how many treasury notes are the failing banks going to buy?

                "Jerome Powell faces an extraordinary challenge as Fed Chairman. If he does not move quickly and aggressively to flood the global financial system with liquidity upon the onset of financial crisis, history books will surely have him tarred and feathered. Greenspan, Bernanke and Yellen hold responsibility for history's greatest Bubble. Yet it will be on Powell's watch when the Fed faces the harsh consequences. In the end, he'll be left with little alternative than more QE and zero rates"

                The FED reacts to market conditions. Pox Americana is attacking the Euro,,, trying to attract fleeing capital. Because of the nature of derivatives, any crash in Euro banks will be here in America within 4 hours.
                Rescuing the money renters with more QE didn't work previously,,, not in the long term. Wages crash, consumption crashes, commerce crashes. Printing money can rescue the money renters in a temporary fashion.

                The trade war;
                "The United States, despite what many will tell you, has incredible strength through its purchasing power, while China holds enough US dollars within its reserve to crash the dollar overnight if it so chooses. "
                Hidden No More, The Currency Wars Take Center Stage
                "China warns trade war will directly hit US consumers & financial markets "
                "US to China: Buy more American gas if you don't want more tariffs

                The Europeans were warned in the beginning that the Eurozone project was doomed if it didn't have a common federal debt pool. Apparently, they see the writing on the wall. Various European States are stocking up on gold to back their new national currencies that are destined to replace the Euro.
                Various articles speculate that CBs will use crypto currencies as reserves. Notice that the CBs are bring the physical gold back to their own vaults. 10% of all crypto currencies have been stolen. It is highly doubtful that crypto will ever be safe enough to be considered a true store of value.

                Pox Americana is stirring up the Chinese by sending warships to the South China Seas. Meanwhile, China is pointing sabers at their close neighbor.

                The stock market is an INDEX of economic activity. It isn't the economic activity. The index can be manipulated by pumping in money. The actual economy can only be manipulated by supplying enough liquidity for the main body of consumers to consume.

                "In fact, the entire state-driven economic and financial fantasy that has been building for more than 30 years is now squarely in harm's way.

                The former always depended upon Washington based stimulus, subventions, bailouts and booty. But now having attained an asymptotic high, the Great Bubble is stranded with no Washington fixers to keep it going; instead, it is fixing to slide into a long night of deflation, disorder and decay."
                Stockman is writing about the fall of the deep state that was financing so much corruption.
                "That is to say, we printed 2870 on the S&P 500, $19.7 trillion of GDP and $97 trillion of household net worth, but those stats weren't the embodiment of sustainable capitalist prosperity; they were the fruit of a $68 trillion national LBO, a central bank-driven financial asset bubble that has no historical antecedent and the rise of an Imperial Deep State in Washington that is a mortal threat to both democracy and national solvency."
                "Not the least of these is last night's unseemly passage of a $1.3 trillion omnibus appropriations bill which encompassed 2,232 pages of fiscal largesse. While it funded every single agency of government at startlingly higher levels, not a single member of Congress had actually read it during the 24 hours between when it was printed and when it was enacted."
                "Still, the heart of the bill---a $695 billion defense appropriation for the current fiscal year---is the real tell. That represents a staggering $80 billion annual increase over the previous DOD spending caps---meaning that the Warfare State has busted loose from any vestige of restraint and rationality."

                "Now that he has installed Mike Pompeo at the State Department, Bloody Gina Haspel at the CIA and Bolton next door to the Oval Office, the Donald has surrounded himself with the neocon war department. It would literally be impossible to find a worse trio of militaristic interventionists"

                I'll finish with an article from Kunstler. It is chilling.
                "President Trump a more reassuring figure. His lack of decorum remains as awesome as his apparent lack of common sense. But he has labored against the most intense campaign of coordinated calumny ever seen against a chief executive and his fortitude, at least, is impressive. What is unspooling for him, and the body politic, are the nation’s finances, and the dog of an economy that gets wagged by finance. Yesterday’s 724-point dump in the Dow Jones Industrial Average is liable to not be a fluke event, but the beginning of a cascade into the pitiless maw of reality "

                "There is plenty of dysfunction in plain sight to suggest that the financial markets can’t bear the strain of unreality anymore. Between the burgeoning trade wars and the adoption in congress this week of a fiscally suicidal spending bill, you’d want to put your fingers in your ears to not be deafened by the roar of markets tumbling. A 40 to 75 percent drop in the equity markets will leave a lot of one-percent big fish gasping on the beach as the tide rolls out. But the minnows and anchovies will suffer too, as regular economic activity declines in response to tumbling markets. And then the Federal Reserve will ride to the rescue with QE-4, which will very sharply drive the dollar toward worthlessness. The result: a nation with a sucking chest wound, whirling around the drain en route to political pandemonium.":


                • The Army corps of engineers will be building the wall

                  Congress rolled over and gave that S.O.B. Marxist everything that he wanted. Obummer could spend what he wanted and where he wanted. After all, IT WAS THE LAW. Well, that law didn't go away.

                  " Once upon a time, when Congress actually worked together, 12 appropriation bills would be created to fund discretionary spending in the government. The trend became to jam all the items in one big bill called an Omnibus Spending Bill because the various factions of the Congress refused to pass the needed 12 appropriations bills to keep the government running. With Trump’s signature, Congress now has until September 30 to come up with appropriations for a budget. Which they won’t do, and will likely just pass another continuing resolution."

                  "There is a difference between a budget and an Omnibus Spending bill. Congress now uses “continuing resolutions” to fund the government in a piecemeal fashion rather than an actual budget. They do that because they can’t work together and everyone is pushing their own agenda rather than for the good of the United States. They are moving from crisis to crisis rather than having a genuine budget that would reduce the pork."

                  You get the idea. Here is the result;
                  Dear Mr. Speaker: (Dear Mr. President

                  In accordance with section 7058(d) of division K of the Consolidated Appropriations Act, 2018 (H.R. 1625; the “Act”), I hereby designate as an emergency requirement all funding so designated by the Congress in the Act pursuant to section 251(b)(2)(A) of the Balanced Budget and Emergency Deficit Control Act of 1985, for the accounts referenced in section 7058(d).

                  The details of this action are set forth in the enclosed memorandum from the Director of the Office of Management and Budget.

                  DONALD J. TRUMP

                  "Fears grow that Trump could ignore Congress on spending:

                  Lawmakers and activists are preparing for the possibility that President Donald Trump's administration, in its zeal to slash the federal budget, will take the rare step of deliberately not spending all the money Congress gives it — a move sure to trigger legal and political battles.

                  There's nothing "rare" about it at all. Odumbo did it for eight years, you fools"
                  It’s not an official ‘Federal Budget’. It’s an Omnibus bill…not a Budget…He outsmarted them again…Congress basically screwed themselves by not passing a Budget…

                  Per the Constitution…the President must adhere to a Budget set forth by Congress and direct the expenditures as provided therein

                  This is another one of those big Porkulus Bills like they gave Obama for 8 years. This is not a Budget..

                  An Omnibus Spending Bill may have some ‘instructions’ as to how the money will be spent…but Obama ignored them.

                  He spent the money or didn’t spend it, however, he wanted to.
                  And Congress didn’t do a thing about it! Because they couldn’t..

                  I think our President observed how this happened, year after year.
                  He is bound to realize that those ‘appropriations’ for different things in these Omnibus bills…are mere ‘suggestions’.

                  So like Obama, Pres Trump can spend this money on whatever he wants to.
                  Or…not spend it.
                  Adrienne's Corner: Omnibus...w/ update
                  "Also, these declarations make some funds fungible. For instance if he determines that building a Wall on the Southern Border is a defense against Human Trafficking? He can move funds from anywhere else in the Defense Dept Allocation & simply build the Wall."
                  "So....because the Military got such a huge amount, the funds can be used to do all sorts of things within that venue and having the Military build the wall is possible. Now that the suggestion, I mean bill has been signed, there is nothing that Congress can do about Trump's discretionary spending other than to pass separate Appropriation bills."

                  "President Trump hinted in a tweet on Sunday that the military could be tasked with building a wall on the Mexican border after a $1.3 trillion spending bill failed to include the funds he sought to erect the structure.

                  “Because of the $700 & $716 Billion Dollars gotten to rebuild our Military, many jobs are created and our Military is again rich,” Trump wrote in a posting about the increase in military spending. “Building a great Border Wall, with drugs (poison) and enemy combatants pouring into our Country, is all about National Defense. Build WALL through M!”

                  But the 2,232-page spending plan, which Trump threatened to veto on Friday before changing his mind, came up short of providing the $25 billion the president wanted to build the wall "
                  "While the bill provided for $1.6 billion for wall construction, it severely limited the money to be used on shoring up parts of the existing barrier.

                  It also provides funds for new fencing, but prohibits a concrete barrier or construction of any of the prototypes Trump has considered." "Trump’s nod to military involvement is significant because among the omnibus bill’s military funding is $654.6 billion to continue the global fight against terrorism.

                  The president has been working with the US Army Corps of Engineers and the Department of Homeland Security to build the wall."
                  OK, so, if this doesn't pi$$ off the liberals enough, Trump has more ammunition to get them really in a froth.


                  • Who will buy the bonds?,,, Yuan oil sales

                    OK, so, the House originated the spending bill. Congress passed it. All the ghouls are rubbing their hands in anticipation of all the money they can siphon off. They didn't even read the bill. They don't care. It's big enough that everybody involved in crony capitalism will get rich. They didn't stop to think that Trump might not spend the money for the discretionary stuff. They also didn't stop to think of where the money will come from.

                    "What Powell forgot to mention, yet is acutely aware of, is that the Fed’s quantitative tightening balance sheet reduction efforts will be flooding the bond market with massive amounts of government debt. Who’s going to buy this debt? And, on top of that, who’s going to fund the Treasury’s $1 trillion deficit?"
                    The plan is for both the FED and congress to be selling Treasury notes.
                    "Then, when the economy begins shrinking or the market crashes, whichever comes first, Powell and the Fed, as buyers of last resort, will flood the financial system with an abundance of cheap credit, and transmit greater and greater economic disparities."
                    What Fed Chair Powell Forgot to Mention |
                    The hoped-for plan is for Powell to jump in and rescue everybody with FED liquidity. I can't see that working out. The ECB will crash first. Europe is already short of dollars to fund dollar-denominated debt. The Eurozone is a lost cause. Will Powell send them $ trillions like Bernanke did? It would just be one more postponement. Their debt system is unworkable. If European banks go down, the contagion will get here fast. I seriously doubt that Powell can react fast enough to stop the default cascade.

                    "The U.S. Treasury will probably auction about $294 billion of bills and notes this week, its largest slate of supply ever"
                    OK, at what point does the bid-to-cover-ratio start to weaken? Will the PPT and/or the ESF jump in? how bad does it have to get for the FED to come back? How soon will that happen?
                    The BIG funds all read Armstrong. At what point in time/price will they abandon the sovereign bond market?

                    The tech stocks are melting. How long will investors stay in tech? Originally, they just wanted protection and were not concerned with earnings. How low must stocks go to scare them out?

                    Here is the news about the new Chinese Yuan oil bourse.
                    Keep in mind that the Yuan is pegged to the dollar. It floats between a pretty tight range. The Chinese oil market is attractive to many State because they are tired of financing america's war on everybody.
                    China will waive income tax for three years for foreign investors trading the country's new crude futures contract
                    They seem to be of to a pretty good start.
                    3/26 Saudi Arabia calls Iran ‘outlaw state,’ hails corruption crackdown – NBC News Now, if they could just shut off the Iranian oil pumps.

                    3/26 U.S. seeks deal with China in bid to avert trade war – Bloomberg
                    China doesn't want our trash,


                    • ROT in the Eurozone,,, interest rates rising

                      The Eurozone is a dead man walking. If Draghi stops printing, nobody will step in to buy GOV bonds. Much of the European banking system is bankrupt. Here is a graph showing the fall since 2009.
                      It shows a recent turnaround but, that is mostly related to bond sales.

                      "Nordvig estimates a half-trillion dollars could flow into the euro in the next two years, equal to a 25 percent boost in the currency’s share of reserves."
                      "The PetroYuan is not about the likability of dollars, nor does it represent a desire by China to dethrone the dollar.

                      Recall that the US is on the verge of energy independence. As a result, the US will buy less oil from the Mideast .

                      China runs a huge trade surplus with the US, but also a big deficit with the Mideast energy producers. Those producers will now accumulate Yuan."
                      This "energy independence" was bought and p[aid for by the junk bond market. The oil majors lost $ 20.9 billion last year. Fracking as never made a profit.
                      "The idea that the yuan will soon replace the dollar as the world's reserve currency is ridiculous for currency reasons, political reasons, and economic reasons. "
                      China is not trying to make the Yuan into the reserve currency. It plans to make the Yuan into the trade currency. There is a slowly emerging plan to make gold the store of value. All currencies will trade relevant to gold.

                      Nothing will save the European banking system. Same for the GOV. It was ill-founded because it uses debt-money to fund socialism. The French GOV spends 57% of the GDP. Will French bonds be repaid? The money was used for consumption, not investment. What happens when the Eurozone debt blows up?
                      ” Farm subsidies devour 38% of the EU budget and 80% of the subsidies go to just 20% of farmers "
                      Excellent article on the loss of birds and insects.
                      Meanwhile, Not-so Great Britain is looking for ways to punish Russia for blocking the globalist / jewish takeover of Syrian and Lebanese oil.
                      "UK Government Preparing To Confiscate Russian Capital "Of Dubious Origin" "
                      "The goal is to ensure that any property attained by unknown means is registered, according to the law. "
                      How the hell is the UK GOV going to learn the source of income for some Russian?

                      3/27 The DC swamp is alive, well and flush with $1.3 trillion – Washington Times So they believe. BUT, who has the keys to the cash register?
                      3/27 NY Fed president proposes “paying” bankers with long-term debt – Mish Translation , "don't desert the bond market"

                      The CBs flatter themselves in believing that they can respond to an emerging crisis. "The normalization of the interest rates is essential and as always, it is now too little too late. The economic environment is changing much more rapidly than most suspect. "

                      ANSWER: Yes, the Bundesbank President Jens Weidmann has come out and warned that banks should start to make provisions for interest rate risks associated with rising interest rates. The normalization of the interest rates is essential and as always, it is now too little too late. The economic environment is changing much more rapidly than most suspect.

                      German 10-year rates will start to rise rapidly following a monthly closing above 0.79%. The next stop will be 2% and thereafter, we will see a test of the 4% level. Once we exceed the 2007 high of 4.67%, we will see a rapid rise to the 5.6% area and an annual closing above that will warn of a test of the 8.5%-11% zone and that can be easily by 2020."
                      Deutsche bank ALONE holds $46 trillion in derivatives, many of them, interest rate swaps.
                      Imagine that you are on a boat in the middle of the ocean. Imagine that one end of the boat is on fire and, the fire is slowly moving towards you.

                      "ANSWER: The Fed is raising rates because they must be NORMALIZED given the pension crisis. They are trying to get then back up and if they could, they would jack them up to 8%. If you can imagine, a pension fund under normal conditions needs 8% annual. Even CalPERS came in at 7% and they were insolvent. Rates are rising because of the pension crisis, not because the economy is really heating up or the stock market is booming. The technical resistance stands at the Downtrend Line at the 3% level. Rates will double to reach that area faster than people suspect."

                      The entire corporate finance structure starts to turn into grey goo when rates get a bit past 3%. Debt service on GOV bonds climbs to over $1 trillion a year if interest rates hit 4--5%. There is no possible way to save the pension funds by taking rates to a level that will wipe out the American corporation AND US GOV solvency.
                      "We have a Directional Change due in May and look at the August/September period where we also have a Panic Cycle. Things are not going to be as smooth-sailing as many believe. We have a very RARE Double Monthly Bullish Reversal at 2.25%. A monthly closing above that level and 5% will be seen in a matter of months."
                      A Panic Cycle. No kidding ! Who wouldof thought of that?

                      The Eurozone is slowly being unmasked as a fascist, authoritarian creation . It is just a burgeoning MASS of bureaucrats who get a big salary for shuffling papers and ruining people's lives. It was created and constructed to have as little democratic imput as possible.


                      • Switzerland,,, elastic money through history

                        “The issue which has swept down the centuries, and which will have to be fought sooner or later, is the people versus the banks.”—John Acton (1834-1902)

                        “Unlike Presidents Lincoln, Garfield, and Kennedy, who defied private bankers and were assassinated—Andrew Jackson survived his assassination attempt. . . . Murders of outspoken presidents, who denounced profiteering bankers, have happened too often for them to be explained away as ‘mere coincidences.’”—Jeff Badyna [1, p. 83]

                        Thomas Edison, “People who will not turn a shovel full of dirt on the project nor contribute a pound of material, will collect more money from the United States than will the People who supply all the material and do all the work. This is the terrible thing about interest ...But here is the point: If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%.

                        Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People. If the currency issued by the People were no good, then the bonds would be no good, either. It is a terrible situation when the Government, to insure the National Wealth, must go in debt and submit to ruinous interest charges at the hands of men who control the fictitious value of gold.”

                        The most prosperous period for Americans was when it was on a gold standard. The most prosperous time for the bankers was when America was on a flexible money standard.

                        Martin Armstrong traded rare coins and was a millionaire by the time that he was 16 y.o.
                        He has constantly condemned Jackson for killing the Central Bank. Armstrong also claims that it is a good thing when foreign competition lowers the cost of consumer goods. The consumer can buy more stuff. LOST from the message; the consumer no longer has a job. Armstrong is ecstatic that computers and automation allow him to greatly reduce the number of employees that he needs. He does economic projections with no particular mention of unemployment.
                        All the tea in China is worthless if nobody can buy tea.

                        "The organizers are calling this the Full-Money Initiative. They understand that the bulk of the money is actually created by banks through lending. Their solution is to bar private banks from lending on any leveraged basis by setting limits on lending. They will be unable to lend money beyond what they actually have on deposit. They cannot create money by new loans."
                        "The promoters are advertising this will make the monetary system more secure and preventing financial crises. “Now we are stepping up our efforts to explain to people where their money really comes from and what the risks are in the old system,” said Emma Dawnay, a member of the organizing team, according to Reuters. They are promoting this Sovereign Money Initiative to stop the financial crisis cycle that they have no idea of how such events are even created."

                        "ccording to their plan, banks will only grant loans to the extent that they have previously received funds from savers, other institutions or the central bank. For the creation of money then only the central bank would be responsible."
                        "She thinks that banks lending money which leverages the system is the CAUSE of a financial crisis so she wants to hand the power to create all money to the government – the very people who are incapable of balancing a budget or managing even a bubblegum machine. "
                        "Government is the single biggest borrower in society. So how will they sell their debt without creating more money? Then we have the problem that if the government has to create the money and approve all loans,"
                        Here you see the crux of the problem. SELL THEIR DEBT If they just print the money, they cut the bankers out of the loop.

                        "Andrew Jackson destroyed the Bank of the United States BECAUSE they lent money to the opposite political party to defeat him. There was no magnanimous effort to save the country. He destroyed the financial system and created the Sovereign Debt Crisis that suppressed the economy for a decade and built the resentment between north and south that led to the civil war 10 years later following the end of the Jacksonian Depression."
                        This is quite a charge. It is also quite a big lie.
                        "Then this idea of a Full-Money Initiative shows truly their underlying ignorance for if you cut off lending, well guess what! They will be unable to sell their homes and the value will crash because the only buyer will be someone with cash. "
                        Another big lie.

                        "This is precisely the outcome of this Sovereign Money Initiative if it actually passed. Switzerland would be the greatest short of all time. No bank would survive and the government would suddenly find NO BID for its new debt."
                        "No bank would survive " Now we get to the central problem.
                        "government would suddenly find NO BID for its new debt." What if it doesn't HAVE to sell debt?

                        So, you see the problem. The State seems to be irresponsible about creating money because it is always trying to buy votes. The banks are always irresponsible about creating money because greed ALWAYS carries away leverage. The gold standard is kryptonite to irresponsible creation of credit. The history of the central bank is the history of money creation to wage wars. The history of socialism is the history of creating money for non-producers. The gold standard could easily be implemented where the State would inject debt-free money into the lower loop for productive work performed. Don't hold your breath waiting for the bankers to be cut out of the loop.


                        • EU collapse,,,Petro-Yuan,, neoliberal economics

                          The Eurocrats tried very hard to force the union down the throats of the European people. They also designed the legal framework so that there would be as little democracy as possible. The MEPs would do as they were told. Nigel Farage told the MEPs that he wanted to destroy the European Union. They laughed in his face. Years later, he told them, "you're not laughing now." The Eurozone project, otherwise known as the "full employment for bureaucrats" project reduced the GDP of it's member States by 20%. The Eurocrats were warned in 1997 that the project had no possibility of surviving without a common debt market.

                          They all marched forward with visions of cushy offices and opulent pensions drawing them towards the mythical land of State plenty.
                          Except for a few States, it has been downhill for most countries. The europhiles being somewhat worried about their perks and pensions, have come up with a solution. The natives are getting very restless and broke. The Eurocrats are planning to form a European army,,, to defend against Russia, of course.
                          Farage asked the European Parliament, "WHO ARE YOU KIDDING". The Europeans have a long history of being trampled on and, they smell a rat.

                          One of the would be rat-fighters is Grillo.
                          "The rise of comedian Beppo Grillo to Italy’s most successful politician, who won 32.7% of the popular vote"
                          "Following the election on March 4th, Grillo’s “five-star” party took by far the first place. Brussels is still in shock and trembling as its mood has changed from he is just a joke to “OMG! This threatens the very existence of the EU”.
                          "It is rather amazing that those still focused on domestic issues in the USA are clueless about the threat to the Euro."
                          That is why I watch global capital flows.
                          "This has maintained a serious deflationary atmosphere in Italy and Brussels simply ignores the economic impact of what their policies have imposed. Italy’s public debt amounts to €2.2 trillion, and the risk of this debt going into crisis undermines the entire existence of the Euro. This is the direct result of the failed structure of the Euro "
                          Italy has been going down for years. Skim 20% off the top of ANY economy to feed non-producers and, see what happens.

                          "Swapping the old debt into Euro that then doubled in value, created a massive wave of deflation that 10 years of flooding the economy with money by the central bank has produced nothing but undermined then the pension system throughout Europe."
                          BAD from day one. There was NEVER a possibility of having a common currency without a common debt market.

                          "The world is lost, yet politicians fail to even understand that they are lost in their misconceptions of economics. The peak in the Euro came precisely in 2008 and ever since we have witnessed the erosion of economic confidence. The peak of the first 8.6-year wave into this new cycle for Europe came 2013.13 and then the low was 2017.43. We are now in a wave due to peak in 2021.73 and by that turning point, we will see the Euro under tremendous pressure if it can even survive."
                          Let's not be too fast to put all the blame on politicians. The corporate takeover of Brussels pushed wages and pensions off a cliff.

                          "However, China's yuan-backed oil futures managed to make a strong début on Monday with overnight trade volumes initially outstripping transactions of internationally recognized benchmark Brent. "
                          “This is the single biggest change in capital markets, maybe of all time,” said Hayden Briscoe, APAC head of fixed income at UBS Asset Management, as quoted by Reuters."
                          "Meanwhile, the high costs of oil storage for delivery into the Shanghai Futures Exchange may scare potential investors away from the new contracts, according to industry analysts. “Storage plays a crucial role in linking cash and futures markets. Many speculators, such as proprietary traders and hedge funds, may be scared away,”
                          This means that THIS market will be friendly to the end user and NOT to the speculator. This will hold down prices because there won't be 30 speculators adding on to the cost of every barrel.
                          This didn't happen a vacuum. MANY States would like the chance to escape the dollar,,, even if it means paying a bit more.
                          Meanwhile, Germany is trying to pull away from Anglo-American control.

                          3/28 Tesla months from total collapse – MarketWatch
                          Dang, I wanted to try "Ludicrous" mode.
                          3/28 Digital countries, like US and UK, make the best cyberwarfare targets – Forbes I can't wait for quantum computers.
                          3/28 IMF’s Lagarde says sees no risk of currency war – Reuters
                          No problems anywhere to be seen from her gold-plated ivory tower.
                          3/28 Economist fears 30% stock market correction – CNBC They should only be so lucky.
                          3/28 How to survive the new tech wreck – Seven Figure Publishing Give away everything that you own.

                          3/28 Anti-Russia campaign taking US dangerously close to disaster – RT Cross post
                          Nomura Warns, Yesterday's "Brutal Factor Unwind" Is Becoming More "Systemic"
                          EVERYTHING is so interconnected. The speed of everything is accelerating. The volatility will just get worse.
                          "However, we immediately saw a BRUTAL mean-reversion / pension fund rebalancing trade to start ’16 as the “deflation scare” absolutely NUKED Tech, Financials and Crude / "

                          So, what's the problem? EVERYBODY figured that they could just raise the price of everything and, you would have to pay it.
                          3/28 Drug prices rising 10 times faster than inflation – UPI
                          "They" never entertained the idea that we might ruin out of money. The cost of an education has risen 3 times faster than inflation.

                          "inflation arose from an excessive extension of credit, which through speculative excess raised prices of goods and assets to unsustainable heights."
                          Neo liberal economics was just a newfangled way to get rich without working. There are some hard-and-fast economic laws. You can get around them temporarily but, not permanently. It's simple, create debt and live on credit.

                          Neoliberalism’s neoclassical economics doesn’t consider debt and the West is hoping to go back to an economic model it can’t go back to.
                          Before 2008, the advanced economies were growing by 4 - 5%, but the debt was rising at 10 – 15%.
                          This economic model was unsustainable over the long term.
                          We haven’t deleveraged that much since 2008 so we can’t go back to an economic model that runs on debt. The whole thing is ridiculous and Western leaders are still clinging to an ideology that never worked in a sustainable way in the first place. The central banks kept the markets up with QE and now they are taking it away, to reveal the West is swimming naked as the QE tide goes out.
                          Pretty scary chart,
                          Notice the olive green part. That is the EU CB balance. Notice that it tapers down to nothing. This is at the same time that Italy needs a couple of $trillion. I think that Armstrong is optimistic about the EU lasting a few more years.


                          • The slow return of golden discipline

                            The Bretton Woods agreement used the U.S. dollar as a proxy for gold to prohibit States from doing unlimited currency expansion. The whole arrangement depended on the honesty of politicians. Unfortunately, the honesty of politicians was much influenced by beggars, bankers and bureaucrats. I suspect that the Clintons represent the apex of criminality.
                            Though, Dick Cheney tried very hard to best them at murder.

                            The gold standard imposed a fiscal discipline on the 3 Bs that they periodically managed to throw off. Once again, we are coming to the end of a super-cycle of debt. Many Central banks are buying gold in anticipation of the credit collapse.
                            Keep in mind that a CB buys gold with FREE money that they just print up.
                            A CB can NOT print up domestic currency and call it "reserves".
                            A CB CAN print money and buy gold, and, call it reserves.
                            A State wants a weak currency for exports but, a strong currency in a currency war.
                            Russia and China have enormous mutual trade. When credit collapses, they will continue to trade normally. They will fulfil trade imbalances with gold. Both of them know that both of them have lots of gold. This will buy lots of trust.
                            Russia and China are not hoarding gold for no reason. There are other efforts to bring a gold referenced currency to the markets.
                            Too many claims that China wants to be the reserve currency. Not going to happen. China wants the Yuan to be the preferred TRADE currency. Gold will be the store of value.

                            "Powell made these comments in 2012, yet in 2018 he is implementing the exact measures he warned about. The Fed is perfectly aware that it engineered a recovery and now it is perfectly aware that it is engineering a calamity,"
                            The Real Reason Why Stock Markets Will Continue To Crumble This Year
                            Good background on the petro-dollar,

                            BTC is just NOT ready for prime time, 3/29 Techlash crushes cryptos – Bitcoin tumbles 50% in Q1 – Zero Hedge
                            Over $500 million in cryptocurrency stolen | PC Gamer
                            Jan 26, 2018
                            NEXT !
                            3/29 Saudi Arabia and Softbank plan world’s largest solar project – Bloomberg ???
                            It might have something to do with the fusor,

                            Everybody wants to pay their bills painlessly,
                            Alex Jones says that it is an exciting time to be alive.
                            Last edited by Danny B; 03-30-2018, 03:17 AM. Reason: sbelling


                            • Tech crash 2,,, Predictions based on incomplete models

                              Not much going on at the moment. It does look like we are going in to 'tech crash' part 2.
                              "Back in the 1990s, critics of the dot-com bubble used to point out that the global economy depended on the US stock market and the US stock market depended on, like, ten Internet stocks with negative aggregate earnings. The resulting inverted financial pyramid was, the critics claimed, very easy to tip over.
                              They were right of course. But apparently not right enough to keep us from repeating the same mistake. From today’s Wall Street Journal:"

                              North Korea needs to re-integrate with South Korea VERY soon.
                              "The entire world is going to go nuts 2031/2032. There will not be a country that is spared from political and economic events. The risk a serious famine in North Korea which could result in the people rising up will arrive in 2023. That pressure will begin here this year 2018.70 – which will be September 13th, 2018. This appears to the turning point that is not just concerning North Korea. It is appearing around the world in many markets. The risk for political change in North Korea comes into play as soon as 2019/2020."

                              The prices in the stock market just keep going up. Armstrong argues that in nominal terms, the stock market is not over-bought. He is wrong, of course. John Hussman has proved beyond a doubt that consumption was brought forward by too much liquidity. When that stimulus wears off, the market can expect zero returns for the next 10 years. ZERO returns at the same time that price inflation is eroding away at actual earnings will mean that true earnings will be less than zero.
                              Armstrong is wrong because the dynamic has changed. Previously, every producer was also a consumer. The bulk of production now is done by non-consuming automatic machines.

                              The consumer is left high-and-dry and the difference is made up by mountains of debt to create artificial consumption. The CBs are reducing the mountains.

                              " a single quote from former president of the Federal Reserve Bank of Dallas:

                              “What the Fed did — and I was part of that group — is we front-loaded a tremendous market rally, starting in 2009.

                              It’s sort of what I call the ‘reverse Whimpy factor’ — give me two hamburgers today for one tomorrow.”
                              "I also do not believe it is a coincidence that the Dow suffers a 1,200 to 1,500 point loss every time the Fed dumps more assets from its balance sheet. Recognize that the mainstream media barely mentions the Federal Reserve's rate hikes and balance sheet cuts as being the cause of the renewed instability in stock markets. "
                              The Real Reason Why Stock Markets Will Continue To Crumble This Year
                              When the FED sells securities from IT's balance sheet, it is trying to suck up funds. When the treasury sells notes for new debt, it TOO is trying to suck up investors funds. Every big fish in the money-rental business is aware of Armstrong's prediction of the collapse of U.S. sovereign bonds.
                              How long before the bid-to-cover ratio crashes?

                              Armstrong relies religiously on the periodicity of his models. History has shown them to be accurate.

                              BUT, there is no historical precedent for;
                              Instantaneous capital flow
                              Instantaneous creation of faux capital
                              Instantaneous transmission of information
                              Worldwide connectivity via the Net
                              Ultra-cheap international shipping
                              Automated manufacturing
                              Birth control
                              Rapidly declining work force
                              Absolute lethality of weapons
                              Cheap fusion power
                              The pole flip
                              How can historical models account for this many huge variables when they are completely new to our systems?


                              • Will the Chinese avoid the reserve currency trap?

                                I copied an interesting comment from Zero Hedge. It is from an article about buying oil in Yuan. Keep in mind that; after Bretton Woods, everybody had to work hard to get dollars,,, for reserves. They DEMANDED more dollars. America was "forced" to print tons of dollars. The R.O.W. was forced to undercut our domestic prices if they wanted to sell stuff to us. This isn't without historical precedence.
                                "The massive importation of American bullion into Spain caused inflation, effecting a drop in Spanish exports and an increase in Spanish imports. Spanish workers stopped making anything worth exporting, and when profits from American gold began to fall, so did the Spanish Empire"

                                "Philip II of Spain defaulted on debt four times - in 1557, 1560, 1575 and 1596 - becoming the first nation in history to declare sovereign default due to rising military costs"
                                "What could the Spanish Empire have done to prevent the runaway inflation following the massive 15th-17th century gold/silver influx?
                                "They made it illegal to export gold or silver. This was a mistake, as it trapped all the precious metals inside their country where they quickly became undervalued. If the crown had allowed exports of gold and silver for the purchase of valuable goods and productive assets from abroad, it would have significantly reduced inflation on goods domestically."

                                The U.S dollar is widely circulated and this avoids higher inflation at home.

                                China needs to avoid the pitfalls of having the reserve currency. Russia needs to avoid having all it's banks stuffed with Yuan.
                                Suppose that China offers $ 2,000 an ounce for physical gold. The paper-gold to physical-gold market is leveraged at least 50--1,,, maybe 300--1. The Chinese offer would pull in much of the Western gold and completely crash ALL markets. The huge turnover in paper gold is used as a reference for a huge number of trades in other commodities. The paper gold markets would freeze up in an instant. Physical gold would be unobtainable. Physical gold would settle in at a much higher price.
                                The money supply of China would not be inflated, just the price of their gold.

                                If you really think about it, this gambit by the Chinese very well could wind up killing their economy.

                                First, think about how many more yuan they will need to print in order to match the demands made by the oil buyers paying in Yuan. The conventional wisdom is that the demand for Yuan to satisfy the oil purchases will drive up the price of the Yuan, and that would be true if the Chinese central bank did not print enough new Yuan to cover the demand created by the new yuan oil buyers.

                                But the Chinese central bank will not sit on their hands, because it would kill the Chinese export economy to have Yuan going through the roof. So they will print Yuan, which eventually will funnel its way back onto the domestic Chinese economy as the oil sellers convert Yuan into other currencies, and the Chinese banks will be the only ones who can process so much Yuan-related currency exchange.

                                When the Yuan wind up circulating back in the Chinese economy, the country will be awash in excess money supply as there will be a disintermediation between the amount of incoming supply and outgoing demand for the currency. So the Chinese central bank will have to print even more currency to maintain its Yuan-based oil purchase policy.

                                Well as you saw with the dollar in the 1970's, when a country has to increase its money supply that drastically, the result is catastrophically inflationary. Until now, the Chinese were able to control inflation internally through price controls, so that they were able to maintain a weak Yuan with constant growth of the money supply so as to propel their exports without having domestic interest rates rise or GDP plummet due to inflation. But now the story will be different because China will be globalizing its currency to the point where there will be incessant needs to increase money supply and money will continually pour into the Chinese economy. Banks will have to do something with this money, as it is owned by individuals involved in the oil trade and not by the government, So the banks will have to lend into an already overly-indebted country. The credit impulse created will serve to either push up prices or create huge shortages of goods, especially food. Think Russia in 1991.

                                The people will not stand for shortages caused by reduced supply which in turn is caused by price controls that rob the producer of a fair price for goods. There will be unrest as shortages grow larger, and the government then will face a huge problem. They will have to lift the price controls or supply of goods will continue to shrink. But in so doing they will collapse their debt market and their economy, because as inflation rises the value of all that outstanding debt will collapse. The banking system will collapse and when that happens there will be no more Yuan-based oil trading.

                                The Chinese are making the mistake of their lives in getting involved with Yuan-based oil trading. Enough of their economists were trained in the US for them to recognize the curse of being a global currency, or a "reserve" currency which really is one in the same. Having to finance global trade creates an incredibly difficult and probably unbearable burden on any country that pursues it. History tells us this from the perspective of the British pound and then the US dollar. The reason is because the country that engages in this international currency supremacy will have to increase its money supply so much that the initial shock will nearly kill it (i.e., the US recession of 1979-81 that nearly destroyed the US economy and would have ruined any other economy on earth throughout all history with its double digit inflation and unemployment). On top of that, the adjustments the country then will have to make in order to survive will be a cancer on it that drains its lifeblood for ages into the future until finally killing it. You see that today with the US government debt, which has been put in place to backstop an economy that is otherwise dying from the loss of jobs and wealth caused by a money supply that has increased far too rapidly over time in large part to finance the status of the dollar as a global "reserve" currency.

                                This entire topic gets very complex and any discussion of it inevitably requires the most boring of recitations of world trade economics. Try reading any book by Joseph Schumpeter dealing with the terrible effects of a country involved in world trade without falling asleep as you do so...that's how boring this material can be.

                                But the bottom line as history has clearly taught is that any country that seeks to establish a leadership position in global trade takes on responsibilities that none have ever been able to survive. Its a fools's errand, reminding me of the old adage of "the pride before the fall". In fact, the best way for the world to engage in trade that benefits all participants without creating undue and devastating burdens on any is to have a special international currency used only for international trade, comprised on a trade-weighted basis of all global currencies, which reduces the need for any one country to finance. The rules for the currency can be set in similar fashion as to what he Europeans decided in Maastricht, so that human error or hubris cannot get in the way of proper economic policy.

                                The Chinese will rue the day they got involved in this Yuan-based oil trading, they already have so many problems that they do not need one more. Especially one that can destroy their economy within five years time because they already have so many Achilles' Heel-type problems. If I was asked what policy should be advocated for the Chinese to destroy themselves, Yuan-based oil trading would probably be in one of the top three positions.

                                But that's the way these things go, young countries with desires to be great often run before they can walk, and wind up falling on their faces. My own feeling is that both the Europeans and the Americans are encouraging the Chinese move in a passive aggressive sort of way, because they know how this all will play out. On the other hand, the Chinese have this itch in the back of their mind sort of like an under-performing older brother feels towards their younger siblings who have done better in life. The Chinese feel like their long history requires - indeed demands - them to re-establish themselves as a leader in the world and a great society. Hence they have tried to insert themselves as an indispensable player in world trade, and now want to become such in world finance as well as in regional military stature. For a country as old as the Chinese, they should have a much richer appreciation for history. Alas, even with such an appreciation, it would still entail the recognition that history does repeat itself, with all of its shortcomings.

                                This is the lesson the Chinese will come away with from the Yuan-based oil trading misadventure. "

                                The Chinese have proven to be good students of history. I suspect that they won't let hubris and national pride lead them into the trap of trying to create a reserve currency.
                                Here is the original article.