My Shadow of Truth partner has posted a compelling interview on his Daily Coin website with Willem Middelkoop. “The Chinese are not too happy about the current dollar world reserve system and have been quite open and vocal about their wish to change the existing monetary system toward a next phase…”
Putin has drafted a bill that would eliminate the use of the U.S. dollar and the euro from trade between and among CIS countries. The CIS countries are: Russia, Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova Tajikistan and Uzbekistan.
This is yet another step in eliminating the reserve currency status of the dollar. I’m sure the U.S. won’t take this move by Putin and lightly and I expect to see an escalation in the U.S. media’s anti-Russia propaganda and perhaps renewed escalation in the United States’ meddling in Ukraine.
You can read the entire news release here: RT Business
Between China’s move to start unloading it’s $1.2 trillion hoard of Treasuries and Russia’s overt antagonism toward the dollar, it’s pretty clear that the world’s transition away from a U.S.-centric system is picking up speed.
The biggest risk in my mind is not the societal fallout from the inevitable financial that will accompany the removal of the dollar from global financial system, it’s the destruction to humanity that will occur when the neocon-controlled U.S. Government takes military action to defend the dollar and the power that comes with being the sole-issuer of the world’s reserve currency.
Nothing is ever the fault of the “exceptional” United States. It’s not our fault that we have to spend trillions containing the evil terrorists in the Middle East while we steal their oil and occupy their countries.
And of course it’s China’s fault that the U.S. stock market is all of a sudden finding the gravitational pull of economic, financial and political fundamentals.
China must be the reason that the U.S. stock market has been bought up the highest p/e ratio in history. Note: I’m using a p/e ratio based on the way earnings were calculated using GAAP 20 years ago – not today’s garbage GAAP which enables companies to manipulate their accounting to an extreme degree.
I guess it’s China’s fault that almost every public and private pension fund in the U.S. is extraordinarily underfunded.
It’s probably even China’s fault that U.S investors and pensions gobbled up shale oil industry junk bonds like they were going out of style on the assumption that oil would stay above $100/barrel forever.
It’s China’s fault that student debt and auto loans have hit an all-time high in this country. When housing prices crash again that will be China’s fault too.
I guess when it comes right down to it, it’s China’s fault that Hilary Clinton is being hounded by problems with her use of her personal email to sell U.S. foreign policy decisions to the highest bidder while she was Secretary of State. Hell, I guess it was China who took a paper towel and wiped clean the hard drive on her personal server.
The fact of the matter is that there was indeed a series of big asset bubbles that formed in China. But they are no different or more severe than the same asset bubbles that have formed all over the world, including and especially in the United States. But at least China is trying to address its bubbles. It was the first to throw its cards on the table and try to let some air out its asset bubbles. Meanwhile the U.S. continues to defend and inflate its bubbles.
I mean, c’mon on – triple C-rated junk bonds in this country were trading at 4% at one point. A triple C rating means that the company which issued that debt has a very high probability of going bust. Triple C-rated paper in the 1990’s traded at yields in the high teens or higher. More than likely CCC- rated bonds become the new equity of a company when it files for bankruptcy reorganization. Or it becomes worth pennies on the dollar if the company liquidates. Triple C-rated paper trading at 4% implies an extreme bubble in the junk bond asset class. But that’s China’s fault, I guess.
This will not end well for the United States. The problem with forcing the “blame China” propaganda on the U.S. public is that it inevitably will lead to a scenario in which the U.S.Government’s neocons who run the Department of Defense will justify starting a war with China. A war with Russia is being started in Syria as I write this. But that’s China’s fault too…
Under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one. – Alan Greenspan, “Gold and Economic Freedom,” 1966
I don’t know if the Plunge Protection Team will be able to stabilize and bounce the market today. I suspect they will get it done sometime in the next 24-48 hours – there’s real blood money at stake here. By this I mean there’s still a lot of middle class wealth that has not been wiped off the table and into the pockets of the elitists. Hell, Hillary Clinton is still standing – for now.
But at some point our system will collapse. EVERYONE in this country has been living off the benefits of The Big Lie for too long. It’s not just the upper .1% who have benefited, even the welfare programs have been levitated by the U.S. Government’s ability to bamboozle the rest of the world into buying our debt and accepting our currency.
When the rest of the world flinched at taking down more debt, the Fed printed trillions to buy U.S. Treasuries directly, and lent $100’s of millions to the Bank of Japan and the ECB to enable them indirectly to continue propping up the Big Lie.
But today gives us a glimpse of The Truth. Beneath the headlines of plunging stock markets, and not being reported by the U.S. financial muppets, is a stunning 1.5% plunge overnight in the U.S. dollar:
At the same time, the world’s oldest currency – the Wall Street Journal’s “Pet Rock” – has performed as the ultimate flight to safety today:
While the “Einsteins” out there offered only the obvious explanations for China’s move to devalue the yuan, I have maintained all along that it was first and foremost a means of tossing a “grenade” at the massively unprecedented U.S. dollar bubble. It only took a about 3% move to accomplish this.
Meanwhile, here’s what’s really happening in China:
Shanghai gold withdrawals for the week ending Aug 14th have been reported at 65.013 tonnes (previous week 56.015 tonnes). This brings the year to date total to 1,585 tonnes, 161 tonnes more than in the record 2013 year at the same time. – John Brimlow’s “Gold Jottings”
The Fed kept insisting that it would raise rates in September. For anyone willing to look honestly at the underlying economic evidence, it was obvious – OBVIOUS – that the Fed would never raise rates. It was nothing but Orwellian smoke. Keep repeating a lie until almost everyone wants to believe it.
I heard a radio promo yesterday for a mortgage broker who insisted that “rates are definitely going higher later this year so you better take out as big of a mortgage as you can now and buy your dream house.”
Rates may go higher this year, but if they they do it’s because the dollar is collapsing – or even vanishing – as the rest of the world other than the Bank of Japan and the ECB rush for the exists with their Treasury holdings.
The Big Lie is that gold is a Pet Rock and the U.S. dollar is the global flight-to-safety currency of the world. If that’s the case, then how come China seems to be cornering the market in Pet Rocks while dumping the dollar through that exit door at the back of the movie theater?
And a U.S. news service didn’t have the balls to report it. From UK Reuters – the U.S. media has not reported this:
They let the market run when it’s spiraling higher non-stop, but they can’t take it when the forces of nature take the market back the other way. This country is just as bad, if not worse, than China…
Blame it on China. Ignore the fact that the primary source of all of the world’s bubbles is the U.S. dollar bubble. How’s that interest hike looking next month, Janet?
The more I considered all of the evidence, the more I am convinced that China knew exactly what it was doing when it initiated its yuan devaluation. It knew that the bubbles in the U.S. were being driven by the U.S. dollar and debt soured carry trades.
China was the first to fold its cards and sprint for the exist – before the exit became too crowded to get out. Everyone was looking at their Treasury holdings – their cards laying face-up on the table. It was the trump cared in their hand that no one saw coming…
Well played, China.
Note: Below this commentary is a Shadow of Truth “Market Update” in which Rory and I discuss possible reasons – besides the obvious – for why China is devaluing its currency.
China began devaluing its currency two nights ago in a move that took the markets by surprise, judging from the reaction of the U.S. stock market and the precious metals. While there are many obvious reasons for China to devalue its currency in relation to global currencies, ultimately I believe it’s China’s strategy of bracing for the impact of a global economic depression and the collapse of highly overvalued stock and bonds markets globally. The latter of which resulted primarily from U.S., Japanese, European and Chinese money printing in unprecedented size and scope.
I find it amusing how analysts and the media in the U.S. are constantly pointing at Japan, Europe and China to demonstrate relative economic weakness and financial overvaluations. In fact, when Rory and I were in the middle of recording our discussion on this issue, Marketwatch dispatched this article: China could trigger the biggest financial rout since 2008.
With the media and most financial analysts it’s always the straw that broke the camel’s back that was the cause of a catastrophe, not the fact that the camel’s back was already insidiously overburdened with destructive weight…
But let’s look at this in the context of the overall, big picture.
This could be the black swan everyone one has been straining to see. I view China’s move differently than desperation on China’s part. I think it’s a brilliant defensive move by China. Yes, China has issues but the issues are no different or worse than the issues infecting the U.S. system.
While the financial “Einsteins” in this country point toward China’s massive sovereign debt, corporate corruption, market overvaluations and $15 trillion “shadow” banking system, no one puts the assertions in the context of the same issues in the U.S. Using combined public, private and contingent liability debt of at least $200 trillion, the U.S. has by far the largest debt obligations in the history of the known universe. The U.S. “shadow” banking system is estimated to be in excess of $24 trillion.
Everyone overlooks this: China has a massive sovereign “cushion” of $3.6 trillion in foreign currency reserves PLUS god knows how much gold. The U.S. has neither to cushion the blow coming. A friend of mine stated it elegantly: “China is bracing for impact.” The U.S. is not prepared for impact. “Impact” = the economic depression and financial collapse hurling toward the world.
Here’s another aspect to what China is doing that everyone seems to forget: China started taking measures to deflate their bubble roughly a year ago. They’ve raised certain bank lending rates and they’ve raised capital reserve ratios. The U.S. has continued to intervene fully in U.S. markets and it’s continued keep the bubbles here inflated.
I believe China’s move was to hasten the process of deflating its own bubbles before everyone else’s bubbles blow-up by market forces. The people in China own gold. The people in the U.S.? Mortgage, auto, credit card and student loan debt.
China is getting the ball rolling on the inevitable. A prisoner’s dilemma of sorts in which China is the first to spill the beans as means of minimizing the consequences on its system when the global financial collapse hits the system – again.
Most people are not aware of this, but the U.S. dollar has lost 97% of its value since 1913 – the year the Federal Reserve was established. That marked to Government’s unofficial systematic program of de-linking the dollar from gold and the beginning of the modern fiat currency era. U.S. dollar.
HOWEVER, the first dissection of the dollar from the gold standard actually occurred during Lincoln’s Presidency, when Lincoln signed the Legal Tender Act, which authorized the use of paper notes not backed by gold/silver (specie) to settle Government war debts. The Government ran low on gold/silver and the Act enabled the Government to print “greenbacks,” or legal tender notes not backed by specie in order to pay its bills.
And so it began. Lincoln was really the first modern fiat currency culprit, not Wilson or FDR or Nixon. Perhaps one of the best ways to illustrate the ability of a gold standard to stabilize the financial system is with a long term chart of the Dow/gold ratio (Source: sharelynx.com, edit is blue is mine) – click to enlarge:
As you can see from the ratio graph, the Dow/gold ratio was very stable between roughly between 1 and 1.5 prior to when Lincoln signed the Legal Tender Act. After that, you can see the ratio “leaks” higher until 1913. After the Fed was established – which is when I believe the gold standard was officially destroyed, the Dow/gold ratio looks like the heart monitor screen of heart attack patient on meth.
I wanted to present this history of fiat currency by way of introducing Part 3 of a phenomenal series about the demise of the U.S. economic system by Brandon Smith of Alt-Market.com. In Part 3 Smith outlines the case for why the catastrophic issuance of Government debt is going to shatter our system:
This lack of structural integrity and stability is hidden from the general public quite deliberately by way of central bank money creation that enables government debt spending, which is counted toward GDP despite the fact that it is NOT true production (debt creation is a negation of true production and historically results in a degradation of the overall economy as well as monetary buying power, rather than progress). Government debt spending also disguises the real state of poverty within a system through welfare and entitlements.
It was the signing of the Legal Tender Act that started the fiat currency snowball that has turned into a deadly avalanche of Government debt. It is also the issuance of this debt than enables the elitists to transfer massive amounts of wealth from the middle to class to themselves.
I highly recommend reading the entire series, but here’s Part 3, which in and of itself describes the horrifying mechanisms being used to destroy the United States by unfettered greed of politicians and bankers: One Last Look At The Real Economy Before It Implodes – Part 3.
The true patriots and heroes in this country are the Edward Snowdens and Ron Pauls. These are the people making a last ditch effort at trying to save what was once a great country.
Marketvane’s Bullish Consensus for the $US hit 90% yesterday. At the beginning of March it was 83%. Market bullish sentiment toward the dollar has not been this bullish since the turn of the millenium. It is a very strong contrarian signal…
The US Dollar index is going parabolic. More often than not, markets that go parabolic will crash. This is what happened with the dollar in 2008 (click to enlarge):
The common “narrative” out there is that the dollar squeeze is being fueled by European sovereign and corporate entities scrambling for dollars in order to pay dollar-denominated debt obligations. Yes, this is part of the equation. But, just like in 2008, it is a sympton of a castrophic underlying systemic problem. After all, the Fed has created close to $4 trillion in new dollars, $2.6 trillion of which are sitting in the excess reserve account of the big banks at the Fed earning interest. That’s $2.6 trillion in excess dollars that can used to fund any excess demand for dollars.
There’s also a repo collateral short squeeze plus a vicious Treasury short-squeeze going on, especially in the middle of the curve, where the Fed has removed most of the supply. But again, these are all “symptoms” of an underlying problem. Let’s not forget that the price of oil, along with many other key economic indicators are collapsing right now.
I believe that the collapse in the energy sector has triggered a silent derivatives counterparty bomb that we can’t see because of the intentional opacity of the OTC derivatives market. But you don’t have a 50% collapse in a key economic commodity like oil – a commodity which has $100’s of billions in OTC derivatives securities wrapped around it – without some kind of counterparty default tsunami that has been triggered. Throw on top of that the Greece situation and you have a recipe for a derivatives financial nuclear meltdown.
Wall Street has been stunningly silent about the meltdown in the energy sector. There has not been one utterance about any derivatives connected to the situation. But we’ve seen at least two big energy junk bond issuers blow up. One of them did not even make the first interest payment on its debt. Without question there were OTC credit default swaps connected to this debt.
The parabolic dollar “short squeeze” storyline is what they want you see. I would suggest that something much bigger and catastrophic unfolding behind that curtain…