Tin Foil Hats, Economic Reality and the Total Perspective Vortex

National Security Adviser H.R. McMaster on Tuesday adamantly defended President Trump’s conversations with Russian officials as “wholly appropriate,”

http://www.foxnews.com/politics/201...o-sharing-with-russia-wholly-appropriate.html

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rblong2us said:

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Wouldn't Trumps impeachment upset a few folk ?
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Mike Gleason: ... Is our US dollar going to retain its Petro-dollar status over time here, Jim?

Jim Rickards: I don’t think so. ...

... I see at least seven or eight different, very powerful threads. ... Well number one, is gold. ...

... So, two of the most powerful countries in the world are buying all the gold they can lay their hands on. The way I put it to people is, you can draw two conclusions. Number one, the Chinese and the Russians are really dumb. Or, they see something that you don’t. They see something that most people don’t see coming. I’ve spent time in Russia and China, they’re not dumb, meaning they see something that most people don’t see. And they’re preparing for a post dollar world or a world in which the confidence in the dollar is greatly eroded. So that’s one thread right there.

Beyond that, we have crypto-currencies. And I don’t want to get into Bitcoin and all that, but that’s a whole separate subject. It’s a long subject and a difficult one for a lot of people. But in all my discussions, I’ve always separated block chain from bit coin. Block chain is the technology behind the distributive ledger and how you actually account for the bitcoins. Bitcoin is the specific digital currency. And there are others out there. Bitcoin may or may not be the future though. That remains to be seen. I have my doubts, but others disagree. But there’s no question that block chain technology has a bright future. Russia is exploring that. If you were Russia, then you were the central bank of Russia, why would you want to be talking to the founder of Etherium or other experts on block chain technology.

Well one answer would be that you’re building a digital currency alternative to the dollar that the U.S. cannot hack or disrupt, because right now everybody’s vulnerable to dollar sanctions. ...

... So, Russia is building alternative payment systems. It’s not enough to try to get out of dollars into gold. You actually – if you’re going to transact, if you’re going to pay people for things – you need an alternative payment system that the U.S. does not control. Block Chain offers that. So, Russia and China are pursuing that.

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So, yes, I think that the dollar will sooner than later lose its status as the dominant global reserve currency. ...

... And that’s a very big deal in terms of the ability of the United States to run perpetual trade and budget deficits without having to suffer inflation or suffer devaluation or the consequences that countries like Argentina know all too well.

And we haven’t even talked about the SDR, which is another alternative to the dollar. I’ve been talking about Russia and China and block chain and gold and euros, but the SDR is out there as well. ... But a global liquidity crisis could happen at any time. And it begs the question. How do you re-liquefy the world? How do you put out or end a global liquidity crisis?

... What if the liquidity crisis hits before the Fed can get their balance sheet normalized, which in my view is very likely. Well in that case, you need another source of liquidity, and that source would be the IMF issuing SDRs and that would be the end of the dollar. So, the threats are everywhere. They could come from a lot of different directions. In fact, all these things will tend to converge, each one will amplify the other. But they all point in the same direction, which is the devolution in confidence in the value of the dollar and much, much higher dollar prices for gold.

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... the global elites are coordinating a new plan for global taxation. As usual, there’s a technical name for global taxation so non-elites won’t understand the plan. It’s called base erosion and profit shifting, or “BEPS.”

The BEPS project is being handled by the OECD and the G-20, with the IMF contributing technical support. If you’re interested in BEPS, there’s an entire website devoted to the global taxation plans and timetables.
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The global elite plan doesn’t stop there. There’s also the climate change agenda led by the United Nations. This agenda goes by the name United Nations Framework Convention on Climate Change (UNFCCC).

The science of climate change is a sticky topic, but we don’t have to dive into it for our purposes. It’s enough to know that climate change is a convenient platform for world money and world taxation.

That’s because climate change does not respect national borders. If you have a global problem, then you can justify global solutions. A global tax plan to pay for global climate change infrastructure with world money is the end game.

Don’t think that climate change is unrelated to the international monetary system. Christine Lagarde almost never gives a speech on finance without mentioning climate change. The same is true for other monetary elites. They know that climate change is their path to global financial control.

That’s the global elite plan. World money, world inflation and world taxation, with the IMF as the central bank of the world, and the G-20 Leaders as the Board of Directors. ...

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A report released by the Nikkei Asian Review indicates that China is prepared to release a yuan-denominated oil futures contract that is convertible (backed by) physical gold. The contract will enable China’s largest oil suppliers to settle oil sales in yuan, rather than in dollars, and then convert the yuan into gold on exchanges in Hong Kong and Shanghai.

This is a significant step in removing the global reserve currency status of the dollar and resetting the the global economic and geopolitical “landscape.” Over the past several years, China has quietly established yuan-based currency exchange facilities, which has set up the ability to implement this new non-dollar trade settlement financial instrument. According to the Brookings Institute, 34 Central Banks around the world have signed bilateral local currency swap agreements with the PBoC as of of the end of September 2016, including the major oil-producing countries. With this new contract, China’s largest oil suppliers will now be able to transact directly with China, and other oil importing countries, using yuan which are directly convertible into gold to settle the trade.
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What follows is my understanding of the situation:

The Bullion Banks are the financial entities that control the price of gold by selling futures contracts, i.e. "paper gold", that promise to provide gold at a certain price, to speculators who buy the contracts, and who only wish to make a profit in Dollars on their bets that the price of gold will rise, and do not intend to take delivery of physical gold.

Sometimes the speculators win some Dollars, but the vast majority are perpetual losers, because the Bullion Banks can move the price down at any moment and clear out the speculators who were "long" gold. This game has been going on for years and years.

I suppose that the Bullion Banks are not going to want to accept Yuan, in exchange for the delivery of physical gold. They will first convert their Yuan into Dollars, and the only likely provider of Dollars will have to be the Bank of China, and which, by the way, in any case desires to reduce its Dollar holdings. Thus the Bullion Banks will offer Dollars for gold.

This operation kills two birds with one stone: the oil exporters get their gold from London and China reduces its dollar holdings, which they wish to do.

As I see it, here is where the fun begins.

First, the amount of gold which the Bullion Banks can provide will put a very unusual strain upon them. The Bullion Banks are accustomed to control de price of "paper gold" in such a way that they make it extremely difficult for the holders of "paper gold" contracts to obtain delivery of physical gold.

However, as the Chinese scheme comes into operation, this situation will change: a new purchaser of large amounts of physical gold has come upon the scene. A very upsetting development for the Bullion Banks, never before seen by any of the managers of those banks!

Secondly, the amount of oil that goes to China is enormous; China is the largest importer of oil in the world, eight million barrels a day. Saudi Arabia sells about one million barrels a day to China, for Dollars. If only Saudi Arabia decides to take Yuan and gold for those Yuan, we are talking about one million times $50 Dollars per barrel = $50 million Dollars a day; at $1315 Dollars per ounce, that comes to 38,023 ounces of gold - 1.183 tons - which Saudi would take off the gold market every day. Millions of barrels of oil will have to balance in value against a very limited amount of gold available. 1.183 tons a day means the Saudi will be taking 431.8 tons of gold off the market every year, and they are not the only oil exporters that China is wooing; other oil exporters accepting Yuan payment for conversion into gold, might very easily increase the departure from London of 1,000 tons or more of physical gold, every year, whose destination will be Hong Kong or Shanghai, in addition to the gold London has been providing normally.

Inevitably, the very first operation carried out under the Chinese scheme will produce a noticeable rise in the price of gold. When the Yuan belonging to the oil exporters is offered to the Bullion Banks in London, they will convert the Yuan into Dollars, and their bid for gold will have to rise immediately, and with it, the Yuan price of gold at the prevailing exchange rate.
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... according to the head of FX strategy at Saxo Bank.

In a quarterly outlook note titled "The world is turning its back on the almighty dollar," John Hardy claimed ...
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"China is eyeing the benefits of having its own currency play a larger role and to supplant the USD's role in global trade," he said. "The initial focus is on the global oil trade, where it has announced the intention of buying oil in yuan and allowing trade partners to settle that yuan in gold."

Hardy said settling in gold is a clever move by Beijing as it provides oil-exporting countries with a greater degree of comfort.

China is the world's largest importer of crude and the analyst forecasted that maintaining a stable currency while buying oil in yuan will be the first steps to increased global demand for renminbi.

"Russia and Iran, long suffering at the hands of U.S. financial and trade sanctions, will be happy participants in this scheme and could provide critical mass. The bigger test will be whether traditional U.S. allies, such as Saudi Arabia, would be willing to risk the ire and financial might of the U.S. by agreeing to receive yuan for oil," said Hardy.
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China will "compel" Saudi Arabia to trade oil in yuan and, when this happens, the rest of the oil market will follow suit and abandon the U.S. dollar as the world's reserve currency, a leading economist told CNBC on Monday.

Carl Weinberg, chief economist and managing director at High Frequency Economics, said Beijing stands to become the most dominant global player in oil demand since China usurped the U.S. as the "biggest oil importer on the planet."

Saudi Arabia has "to pay attention to this because even as much as one or two years from now, Chinese demand will dwarf U.S. demand," Weinberg said.

"I believe that yuan pricing of oil is coming and as soon as the Saudis move to accept it — as the Chinese will compel them to do — then the rest of the oil market will move along with them."
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... China has established a payment versus payment (PVP) system for Chinese yuan and Russian ruble transactions in a move to reduce risks and improve the efficiency of its foreign exchange transactions. The PVP system for yuan and ruble transactions, designed to streamline commerce and curency transactions between the two nations, was launched on Monday after receiving approval from China’s central bank, according to a statement by the country’s foreign exchange trading system.

It marks the first time a PVP system has been established for trading the yuan and foreign currencies, said the statement, which was posted on Wednesday on the website of the China Foreign Exchange Trade System (CFETS). PVP systems allow simultaneous settlement of transactions in two different currencies.
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CFETS said it plans to introduce PVP systems for yuan transactions with other currencies based on China’s Belt and Road initiative, and complying with the process of renminbi internationalization. ...

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Adam Levinson, of hedge fund manager Graticule Asset Management Asia, said China rolling out a yuan-denominated oil contract within the next two months will be a “wake up call” for investors who haven’t paid attention to the plans.

The move toward creating a so-called “petro-yuan” will be a “huge story,” Levinson, the founder and chief investment officer of Singapore-based Graticule, said in a Bloomberg Television interview on Tuesday.
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All the rumours and analyses on gold, oil and yuan that are making rounds now in the blogosphere are based on the Nikkei article. But the Nikkei article itself contains zero official sources. Basically, the whole story has been invented by Damon Evans. ...
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Aside from all the inaccuracies in the Nikkei article, what stands out for me is that indeed a large number of countries is willing to trade oil in yuan and the new INE futures contract is important for this development as it allows oil producers and users to hedge directly in renminbi. And so the INE contract will support oil for yuan trading. That’s what the article should have focused on.
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The dollar is at its weakest level in years against other major currencies.

Experts say the drop is being driven, at least in part, by the U.S. government. And some suggest it's a deliberate campaign aimed at boosting the American economy at the expense of major trading partners like Europe and Japan.

The Trump administration is engaged in "a cold currency war -- and it's winning," Joachim Fels, an economist at investment firm Pimco, said this week.
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Lighthizer is part of a hawkish “Trade Troika” consisting of himself, Secretary of Commerce Wilbur Ross, Jr. and White House trade advisor Peter Navarro. All three are urging President Trump to impose a set of tariffs on China involving not only washing machines and solar panels, but steel, aluminum, and theft of intellectual property.

Opposing the Trade Troika are trade doves including National Economic Advisor Gary Cohn, Chief of Staff John F. Kelly, Secretary of State Rex Tillerson and the CEOs of major global corporations such as Boeing, Apple and General Motors that all derive large profits from Chinese operations.

The hawks and doves fought each other to a standstill in 2017 because of wishful thinking about Chinese help on North Korea and the importance of a united front to pass the tax bill. With hopes for China now dispelled and the tax bill passed into law, the trade agenda is front and center.
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A full-scale trade war will hurt world growth even as it helps U.S. growth. Given the trillions in dollar-denominated debt in emerging markets, a full-scale foreign sovereign debt crisis could be in the making if those emerging markets countries cannot earn dollars from exports to pay their debts.

Trump did not impose these tariffs in 2017 because he needed Chinese help with the North Korean situation. But, China did not do all it could in North Korea, and there is good evidence that China is helping North Korea cheat on existing sanctions.

As if to rub salt in the wound, China reported today that its 2017 trade surplus with the U.S. was $275 billion, the highest ever.

Once China’s lack of cooperation on North Korea became clear, Trump saw no harm in confronting China on trade, something he’s been talking about since the summer of 2015 during the early days of his campaign.
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rblong2us said:

Yeah Rickards reckons we've now moved from currency wars to trade wars and sincerely hopes we will not move to phase 3, hot war -

https://www.silverdoctors.com/headl...lcome-to-the-trade-war-if-youre-ready-or-not/

Dont know how this might effect the petro dollar demise ?

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In a challenge to the world’s dollar-denominated oil benchmarks Brent and West Texas Intermediate, China will list local-currency crude futures in Shanghai on March 26, according to the nation’s securities regulator. ...

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Trading in the new Shanghai oil future commenced last Monday, ...
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China does not intend to replace the petrodollar with its own currency, other than for her own energy and commodity imports. To put it into context, China imports about 8 million barrels of oil per day, mostly from the Eurasian continent, which compares with global daily demand of roughly 100 million barrels. China also produces her own oil to the tune of about 3.7 mbd, so if all China’s suppliers take yuan in payment, it leaves about 88% of global demand still being priced in dollars.

Therefore, there is for the moment little alarm in Western financial markets about this development. However, at the same time, US oil production is rising, and her imports declining, so even though the energy world is dominated by dollars, the relative importance between the US and China with respect to the international oil trade is rapidly shifting away from America.

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Now we turn to the circumstance faced by the dollar. Just at the moment when the role of the petrodollar is being undermined by the new yuan contract, and the non-American world is still awash with dollars following the last financial crisis, President Trump is increasing the budget deficit, and consequently we can expect the trade deficit to increase further as well.ii

There can only be one result, and that is substantial and sustained selling of the dollar on the exchanges. It is reminiscent of the situation in the mid to late 1960s, when returning dollars led to three distinct failures: a failed attempt to absorb dollar sales for gold by setting up the London gold pool, a failed devaluation of the dollar from $35 to $42.22, and finally the collapse of the Bretton Woods Agreement in August 1971. That was the last great Triffin unwind, and now the next one is in prospect.

Foreign holders of dollars, including China, will wake up to the threat, if they have not already done so. ...

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The US dollar’s share of currency reserves reported to the International Monetary Fund declined in the final quarter of 2017 to a four-year low, as other currencies’ shares of reserves grew, data released yesterday showed.
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China is of course a command economy with a state-controlled banking system. It can bathe the economy with stimulus and order lenders to refinance bad debts. It has adequate foreign reserve cover to bail out its foreign currency debtors. But it is also dangerously stretched, with an "augmented fiscal deficit" above 12 per cent of GDP.

It is grappling with the aftermath of an immense credit bubble that has pushed its debt-to-GDP ratio from 130 per cent to 270 per cent in 11 years, and it has reached credit saturation. Each yuan of new debt creates barely 0.3 yuan of extra GDP. The model is exhausted.
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Chinese growth has been reported in recent years as 6.5–10% but is actually closer to 5% or lower once an adjustment is made for the waste. The Chinese landscape is littered with “ghost cities” that have resulted from China’s wasted investment and flawed development model.

This wasted infrastructure spending is the beginning of the debt disaster that is coming soon. China is on the horns of a dilemma with no good way out.

On the one hand, China has driven growth for the past eight years with excessive credit, wasted infrastructure investment and Ponzi schemes. The Chinese leadership knows this, but they had to keep the growth machine in high gear to create jobs for millions of migrants coming from the countryside to the city and to maintain jobs for the millions more already in the cities.

The Communist Chinese leadership knew that a day of reckoning would come. The two ways to get rid of debt are deflation (which results in write-offs, bankruptcies and unemployment) or inflation (which results in theft of purchasing power, similar to a tax increase).

Both alternatives are unacceptable to the Communists because they lack the political legitimacy to endure either unemployment or inflation. Either policy would cause social unrest and unleash revolutionary potential.

Instead of these unpalatable extremes, the Chinese leadership is trying to steer a middle course with gradual financial reform and gradual limits on shadow banking. I’ve previously predicted that this gradual policy would not work because the credit situation is so extreme that even modest reform would slow the economy too fast for comfort.

That’s exactly what has happened. China has already flip-flopped and is easing up on financial reform. That works in the short run but just makes the credit bubble worse in the long run. China may soon resort to a combination of a debt cleanup and a maxi-devaluation of their currency to export the resulting deflation to the rest of the world.

It is probably the best way to avoid the social unrest that terrifies China.

When that happens, possibly later this year in response to Trump’s trade war, the effects will not be confined to China. A shock yuan maxi-devaluation will be the shot heard round the world as it was in August and December 2015 (both times, U.S. stocks fell over 10% in a matter of weeks).
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Russian Energy Minister Aleksandr Novak said the country is considering an option of payments for oil in national currencies, in particular with Turkey and Iran.
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Last year, the central banks of Iran and Turkey signed an agreement on using local currencies in trade. The countries aimed to improve economic links and make bilateral trade easier, as well as getting rid of the US dollar and the euro. Tehran, which has long sought to switch to non-dollar based trade, has signed agreements with several countries. It is currently in talks with Russia on using national currencies in settlements.
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– Global debt bubble hits new all time high – over $237 trillion
– Global debt increased 10% or $21 tn in 2017 to nearly a quarter quadrillion USD
– Increase in debt equivalent to United States’ ballooning national debt
– Global debt up $50 trillion in decade & over 327% of global GDP
– $750 trillion of bank derivatives means global debt over $1 quadrillion
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Iran’s central bank has announced a ban on the sale of foreign currencies at exchange bureaus. Under new government guidelines, exchange bureaus no longer have the right to buy, sell, or transfer foreign currencies, and the central bank will no longer provide cash to the bureaus.

Mohammad Ali Karimi, head of public relations for the central bank, announced on state-run television on April 13 that the guidelines aim to “redefine the job description of exchange bureaus,” adding, “They might be given the role of a mediator for cases when Iranian banks are not interacting with some foreign banks.”

The exchange rate of Iran’s rial to the U.S. dollar is now officially set at 42,000. Karimi said exchange bureaus can sell dollars to banks at the new price. However, there are no dollars available at that rate and no one is willing to sell dollars at the arbitrarily set rate.

It would be a different matter if the central bank would make dollars widely available at the new official rate, but that would drain the state’s dollar reserves, as companies and people would scoop up as much as possible because of their lack of trust for the local currency.

Previously, Iran’s central bank (CBI) would provide select exchange bureaus with between $50,000 and $100,000, which they were then allowed to sell at a profit of up to 15 percent.

According to the daily Qanoon, however, exchange bureaus are only allowed to buy or sell gold coins “until further notice.”
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Turkish President Recep Tayyip Erdoğan has suggested that international loans should be contracted based on gold instead of U.S. dollars in order to prevent exchange rate pressure on economies.

“I made a suggestion at a G20 meeting. I asked: Why do we make all loans in dollars? Let’s use another currency. I suggest that the loans should be made based on gold,” Erdoğan said during a speech at the opening ceremony of the Global Entrepreneurship Congress in Istanbul on April 16.

“With the dollar the world is always under exchange rate pressure. We should save states and nations from this exchange rate pressure. Gold has never been a tool of oppression throughout history,” he added.
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The International Monetary Fund today sounded the alarm on excessive global borrowing, warning that with a total of $164 trillion owed, the world's public and private sectors are deeper in debt than at the height of the financial crisis a decade ago.

Global debt is now more than twice the size of the value of goods and services produced every year and at 225 percent of global gross domestic product it is now 12 percentage points higher than at its previous peak in 2009.

The fund said there was now an urgent need to reduce the burden of debt in both the private and public sectors to improve the resilience of the global economy and provide greater firefighting capability if things went wrong. ...

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Iran will start reporting foreign currency amounts in euros rather than U.S. dollars, state media said on Wednesday as part of the country’s effort to reduce its reliance on the U.S. currency due to political tension with Washington.

The new policy could encourage government bodies and firms linked to the state to increase their use of the euro at the expense of the dollar.
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Bank transactions involving the dollar are already difficult for Iran because legal risks make U.S. banks unwilling to do business with Tehran. Foreign firms can be exposed to sanctions if they do Iranian deals in dollars, even if the operations involve non-U.S. branches.

As a result, France will start offering euro-denominated credits to Iranian buyers of its goods later this year to keep its trade out of reach of U.S. sanctions, the head of state-owned French investment bank Bpifrance said in February.
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• It is monstrously expensive: more than twice the cost per lot compared than US dollar ones. The transaction fee for Shanghai futures is about $3.20 per lot, compared with about $1.50 for U.S. oil contracts, according to Bloomberg.
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• It trades for only a few hours. One hour and a half in the morning, one hour and a half in the afternoon and a few hours at the close of the Chinese market. While the rest of the international oil contracts have twenty-four-hours trading, the Chinese local currency energy market (INE) trades eight hours a day. The implantation and internationalization of a currency does not happen because it is decided by a government
• It has excessive margin requirements, more than double those of the equivalent markets in US dollars. The margin required to participate in China’s futures is 7% of the contract value, rising to 10 percent the month before delivery and 20 percent in the last three days before delivery. In the U.S., the margin is 3.4% of the contract value, according to Goldman Sachs and Bloomberg.
• To the above, we must add two other barriers. A translation exchange to other currencies of 3% and, above all, an economy that has capital controls in which the Chinese government can decide by decree if you can or cannot get your money back when it pleases you.

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Turkish President Recep Tayyip Erdoğan has suggested that international loans should be contracted based on gold instead of U.S. dollars in order to prevent exchange rate pressure on economies.

“I made a suggestion at a G20 meeting. I asked: Why do we make all loans in dollars? Let’s use another currency. I suggest that the loans should be made based on gold,” Erdoğan said during a speech at the opening ceremony of the Global Entrepreneurship Congress in Istanbul on April 16.

“With the dollar the world is always under exchange rate pressure. We should save states and nations from this exchange rate pressure. Gold has never been a tool of oppression throughout history,” he added.
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The Central Bank of Nigeria (CBN) has signed a currency swap deal worth about $2.5 billion with the People’s Bank of China to provide adequate local currency liquidity for transactions between national businesses, The Punch newspaper reported on Thursday, citing a high-ranking official from the Central Bank of Nigeria (CBN).

The deal that is the result of two-year tense talks, aimed at facilitating bilateral trade, investments and strengthening of the financial stability of both nations as well as reducing difficulties related to the use of third currencies in mutual business transactions.
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Foreign governments pulled back their purchases of longer-term U.S. debt as trade tensions escalated around the world.

The declines are relatively small so far for notes and bonds — just shy of $5 billion each for March and April, the most recent months for which Treasury data are available — but it signals a potentially troubling trend.
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One of the most glaring declines has come from Russia, which sliced its holdings of U.S. debt nearly in half from March to April, from $96.1 billion to $48.7 billion. Russia's Treasury ownership peaked at $108.7 billion in May 2017.

In all, foreigners held $6.17 trillion of the total $14.84 trillion of Treasury debt outstanding through April. The national debt including intragovernmental holdings has swelled to more than $21 trillion.

Russia isn't the only country cutting back in its U.S. holdings.

China, the largest owner of U.S. debt, reduced its level by $5.8 billion in April to $1.18 trillion, while Japan, the second largest, cut its holdings by $12.3 billion to $1.03 trillion. Ireland, the U.K. and Switzerland also pulled back.

When counting all securities (including T-bills), the April decline came to $47.6 billion, a 0.8 percent reduction from March.

Finding buyers for government debt has become increasingly important since the Federal Reserve halted its bond-buying program in October 2016 after swelling its holdings to more than $4.2 trillion.
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