Economic pressures

[Danny B]

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

https://www.pressherald.com/.../chin...s-japan-korea-...
Dec 6, 2017

No problem, the hot money pays cash.

[Danny B]

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.Why it's time we manufactured money as we manufacture goods - Director of Finance Online

[Danny B]

https://www.armstrongeconomics.com/world-news/conspiracy/is-goldman-sachs-to-new-rothschilds/

"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."

https://www.armstrongeconomics.com/international-news/mexico/mexico-the-112-year-cycle/

"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."

https://www.paulcraigroberts.org/2018/03/20/america-is-in-collapse/

"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."

https://www.rt.com/business/421831-europe-runs-out-dollars/

Yep, America is actively trying to crash the Euro..



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, https://www.independent.co.uk/news/b...-a8266131.html

That's what happens when the FED sucks the dollars out of Europe.

[Danny B]

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 privateAs 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.

https://www.newsmax.com/finance/peterreagan/debt-point-no-return/2018/03/22/id/850183/

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

https://www.caseyresearch.com/a-chain-reaction-will-begin-soon-heres-how-to-prepare/

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

https://drive.google.com/file/d/1EPkBNGrTuEjcrxugpcf3CauVcXfvnZ_7/view

2 deaf men shooting at each other in a dark room.

[Danny B]

https://www.caseyresearch.com/a-chain-reaction-will-begin-soon-heres-how-to-prepare/

https://www.armstrongeconomics.com/markets-by-sector/foreign-exchange/usd/why-are-dollar-bulls-almost-extinct/

https://theeconreview.com/2018/03/19/indias-bad-loans-problem-2/

This is called volatility.


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?

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

[Danny B]

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 afterwardsinflation arose from an excessive extension of credit, which through speculative excess raised prices of goods and assets to unsustainable heightsThe Federal Reserve We Need

https://www.federalreservehistory.org/essays/wwii_to_the_treasury_fed_accord

https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr684.pdf

[Danny B]

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.

https://creditbubblebulletin.blogspot.com/2018/03/weekly-commentary-regime-change.html

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 https://on.rt.com/91qa

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.

https://www.rt.com/business/400735-bundesbank-repatriates-gold-paris/

https://www.rt.com/business/209591-gold-europe-gold-repatriation/

https://www.zerohedge.com/news/2018-03-23/are-central-banks-about-open-floodgates-gold-and-cryptocurrency

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.

https://www.zerohedge.com/news/2018-03-23/chinese-newspaper-beijing-should-prepare-war-taiwan-straits

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"

http://davidstockmanscontracorner.com/now-it-begins-americas-state-wreck-gathers-steam-part-1/

http://kunstler.com/cluster****-nation/the-unspooling/

[Danny B]

https://news.unclesamsmisguidedchildren.com/omnibus-spending-bill-and-why-different-what-you-think/

Adrienne's Corner: Omnibus...w/ update

https://nypost.com/2018/03/25/trump-suggests-the-military-might-build-the-border-wall/

OK, so, if this doesn't pi$$ off the liberals enough, Trump has more ammunition to get them really in a froth.

https://nypost.com/2018/03/26/trump-administration-adding-back-census-citizenship-question/

[Danny B]

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"

https://www.bloomberg.com/news/articles/2018-03-25/bond-traders-face-gut-check-in-record-300-billion-u-s-auctions

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. https://www.rt.com/business/422304-p...an-oil-prices/
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.
Now, if they could just shut off the Iranian oil pumps.


China doesn't want our trash, https://www.rt.com/news/422255-us-ch...lables-import/

[Danny B]

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.

https://imageproxy.themaven.net/https%3A%2F%2Fs3-us-west-2.amazonaws.com%2Fmaven-user-photos%2Fmishtalk%2Feconomics%2FzmfATcSa4EegwR7v_znq6Q%2FITTmOSkdH0q1TFxpCzUY8Q

https://www.themaven.net/mishtalk/economics/petroyuan-is-a-huge-us-success-story-not-a-chinese-one-NP86ktc1SkmDIh0MO3Cdfw

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?

Excellent article on the loss of birds and insects.

https://www.theautomaticearth.com/2018/03/the-science-of-a-vanishing-planet/

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" "

https://www.zerohedge.com/news/2018-03-26/uk-government-preparing-confiscate-russian-capital-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?

So they believe. BUT, who has the keys to the cash register?
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.

https://www.armstrongeconomics.com/markets-by-sector/interest-rates/bundesbank-warns-german-banks-rates-are-moving-higher/

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."

https://www.armstrongeconomics.com/markets-by-sector/interest-rates/the-fed-is-raising-rates-because-of-the-pension-crisis/

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.

https://www.armstrongeconomics.com/uncategorized/germany-arrests-former-head-of-catalonia-for-spain-confirm-the-spanish-constitution-violates-human-rights/

[Danny B]

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?

https://www.armstrongeconomics.com/world-news/monetary-reform/proposed-monetary-reform-in-switzerland-would-destroy-the-country/

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.

[Danny B]

global

https://www.armstrongeconomics.com/markets-by-sector/foreign-exchange/euro/will-the-euro-survive-by-2021/

https://www.rt.com/business/422561-petroyuan-gold-biggest-change-markets/

https://www.rt.com/business/422561-petroyuan-gold-biggest-change-markets/

Meanwhile, Germany is trying to pull away from Anglo-American control.

https://www.rt.com/business/422476-nord-stream-permits-germany-us/

Dang, I wanted to try "Ludicrous" mode.
I can't wait for quantum computers.

No problems anywhere to be seen from her gold-plated ivory tower.
They should only be so lucky.
Give away everything that you own.

Cross post http://www.energeticforum.com/309215-post107.html

https://www.zerohedge.com/news/2018-03-28/nomura-warns-yesterdays-brutal-factor-unwind-becoming-more-systemic

So, what's the problem? EVERYBODY figured that they could just raise the price of everything and, you would have to pay it.

"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. https://cdn.opendemocracy.net/neweco...t-13.52.41.pnghttps://www.zerohedge.com/sites/defa...ce%20sheet.jpg
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.

[Danny B]

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.

https://www.valuewalk.com/2018/01/gold-bugs-central-banks/

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.

https://www.zerohedge.com/news/2018-03-28/jig-dollar-andrew-maguire

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, https://www.zerohedge.com/news/2017-...at-comes-after

BTC is just NOT ready for prime time,
Over $500 million in cryptocurrency stolen | PC Gamer

https://www.pcgamer.com/over-500-million-in-cryptocurrency-stolen/

Jan 26, 2018 NEXT !
???
It might have something to do with the fusor, http://www.thedrive.com/the-war-zone...fusion-reactor

Everybody wants to pay their bills painlessly, https://www.zerohedge.com/news/2018-...cryptocurrency
Alex Jones says that it is an exciting time to be alive.

https://www.youtube.com/watch?v=CQGj6vc2-to&t=307s

[Danny B]

https://dollarcollapse.com/stock-prices/tech-wreck-techlash-techmageddon-wall-street-terrified/

https://www.armstrongeconomics.com/international-news/north-korea/when-will-north-korea-rise-to-overthrow-kim-jung-un/

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.

https://www.armstrongeconomics.com/markets-by-sector/stock-indicies/dow-jones/our-proprietary-us-share-market-index-measuring-the-degree-of-overbought-securities/

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.

https://www.armstrongeconomics.com/future-forecasts/ecm/the-economic-confidence-model-began-with-recorded-history/

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?

[Danny B]

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.

Comment;
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.

https://www.zerohedge.com/news/2018-03-31/china-plans-pay-oil-imports-yuan-instead-dollars?items_per_page=50&sort_by=thread&sort_order=ASC&page=0%2C0%2C0%2C0%2C0%2C0%2C0%2C0%2C0