Tin Foil Hats, Economic Reality and the Total Perspective Vortex

[rblong2us]

What can a "coalition of the willing" actually do though?

How about stop worrying and work with other non dollar currencies to stay broadly in lockstep and simply default on the US$ loans ?

 

[pmbug]

I found this twitter discussion interesting:

Go ahead, blame Powell. Don't tell anyone that foreign buying of Treasury debt has been cut in half this year and keep it a secret that the dollar share of world FX reserves has shrunk to a 5-year low of 62.5%. ...

More: https://mobile.twitter.com/EconguyRosie/status/1055071603808182272

 

[pmbug]

...
For the euro to decisively overtake the dollar as a reserve currency, the risk of the bloc breaking up needs to be “completely eliminated” and that’s not the case yet, said Ryan Myerberg, a money manager at Janus Henderson Investors.

Italian budget issues are set to continue to preoccupy investors into 2019, even after the country survived a brace of credit-rating reviews largely unscathed. The coalition continues to push for a higher deficit than allowed under European rules.

“To me the fundamental issue going into 2019 is whether Italy can resolve its budget issues with the European Commission,” Van Luu, head of currency and fixed-income research at Russell Investments Ltd., said. “It will be interesting to see whether populist or euro-skeptic parties can gain significantly in elections, if that was the case it could undermine the case for the euro.”
...

https://www.bloomberg.com/news/arti...rve-status-deflated-by-rise-in-political-risk

I looked around this morning, but I'm not seeing any new info/news about the proposed EU "special purpose vehicle" alternative to SWIFT. I did find an article that talks about the SWIFT system that mentioned this:

...
Meanwhile, the European Union is moving ahead with an alternative "special purpose vehicle" to facilitate transactions with Iran for the bloc's businesses. The EU announced that it would be "symbolically" ready when US oil sanctions take effect on November 4, but its system will not be operational until next year.
...

https://www.dw.com/en/swift-could-slow-trumps-iran-sanctions/a-46119092

 

[rblong2us]

Meanwhile, the European Union is moving ahead with an alternative "special purpose vehicle" to facilitate transactions with Iran for the bloc's businesses. The EU announced that it would be "symbolically" ready when US oil sanctions take effect on November 4, but its system will not be operational until next year.

yeah ?

could be a nice little earner for Italy :rotflmbo:

https://www.ft.com/content/0cb5534c-daac-11e8-9f04-38d397e6661c

The EU has struggled to find a member state to host a new financial channel to shield trade with Iran from looming US sanctions, diplomats said, in the latest hurdle to the bloc’s efforts to save a landmark nuclear deal with Tehran.

The Europeans want to set up a “special purpose vehicle” to process Iran’s import and export payments once Washington clamps down on the country’s central bank and oil industry on November 5. The US action is part of an economic squeeze on Tehran after President Donald Trump pulled out of the 2015 international atomic accord in May.

EU countries led by France, Germany and the UK — signatories to the nuclear deal — want to enable non-US trade with Iran to continue in defiance of Washington.

 

[pmbug]

Wouldn't that be rich? But Italy is already tbtf with respect to EU membership. I suspect that if it does happen, it will be with a small state that doesn't really have a lot of exposure to US markets and wants to secure their place in the eu.

 

[pmbug]

...
On Monday, Secretary of State Mike Pompeo announced that as part of the reimposed sanctions, eight important oil importers — China, India, South Korea, Turkey, Italy, Greece, Japan and Taiwan — would receive 180-day exceptions, or waivers, letting them buy Iranian oil as long as they show reductions in the amounts.

More than 20 countries already have cut their imports of Iranian oil, shrinking Iran’s exports by about one million barrels a day, Mr. Pompeo said.

American officials would need great leverage to induce China and India, Iran’s biggest customers, to cut off all their imports; the two nations have enormous energy needs. Chinese leaders are incensed over the intensifying trade war begun by Mr. Trump, and they are wary about the diplomacy Mr. Trump is conducting with North Korea over that country’s nuclear program.

Given all that, experts say, it is unlikely that China and India will end all imports of Iranian oil — even after the 180-day waivers expire.

“I think the U.S. made the calculation that market stability and geopolitical relationships superseded interests in trying to bring down Iranian exports,” said Henry Rome, an Iran analyst at the Eurasia Group, a Washington-based political risk consultancy.
...

https://www.nytimes.com/2018/11/05/world/middleeast/iran-sanctions-explained.html

The top U.S. diplomat has granted an exception to certain U.S. sanctions that will allow the India-led development of a port in Iran as part of a new transportation corridor designed to boost Afghanistan’s economy, a State Department spokesman said on Tuesday.

The exception granted by Secretary of State Mike Pompeo to U.S. sanctions reimposed on Iran on Monday also will permit the construction of a railway line from Chabahar port to Afghanistan, and for shipments to the war-torn country of non-sanctionable goods, like food and medicines, the spokesman said.

In addition, Afghanistan will be allowed to continue importing Iranian petroleum products, the spokesman said.

“These activities are vital for the ongoing support of Afghanistan’s growth and humanitarian relief,” the spokesman said in a statement emailed to Reuters.
...

https://www.reuters.com/article/us-iran-nuclear-afghanistan-idUSKCN1NB2HW

...
Iran analysts, however, said the announcement on waivers points to US President Donald Trump's inability to rally the international community and reach a consensus against Tehran.

"The Trump administration is waking up to the fact that its Iran policy has strained ties with a wide range of countries," Esfandyar Batmanghelidj, founder of the Iranian economy website Bourse Bazaar, told Al Jazeera.

"Showing flexibility on oil imports may be a way for the US to seek more cooperation on sanctions in other areas."

In Tehran, the decision on waivers is seen as "a victory", as it was able to sustain its energy exports "after months of US threats that oil sales would be pushed down to zero".
...

https://www.aljazeera.com/news/2018...ctions-iran-oil-gas-loom-181029185330547.html

Adding an exception for China is understandable. We don't really have the leverage to bind them to our will. And they aren't going to risk an internal revolution to appease the USA's foreign policy goals.

Adding an exception for India was something I was expecting to see. The Chabahar port issue was likely a line in the sand point of no return that India was not willing to concede. I haven't posted much about it, but I've been reading about it for a while now.

What's really interesting to me are the exceptions for Turkey, Greece and Italy. Is this an effort to undermine the impetus for the EU's "special purpose vehicle"? It's interesting that the exceptions have a 180 day expiration period. We'll see if that sticks or, much like Congress' "spending limit", just gets extended whenever the limit is reached.

 

[pmbug]

France aims to lead the European Union (EU) efforts in defying U.S. sanctions on Iran, by supporting the creation of a payment mechanism to keep trade with Iran and making the euro more powerful, France’s Economy Minister Bruno Le Maire said in an interview with the Financial Times.
...
As the U.S. sanctions on Iran snapped back on Monday, the SPV hasn’t been operational and reports have had it that the undertaking is very complicated and politically sensitive. The bloc is also said to be struggling with the set-up, because no EU member is willing to host it for fear of angering the United States, the Financial Times reported recently, citing EU diplomats.

On Monday, the Belgium-based international financial messaging system SWIFT said that it would comply with the U.S. sanctions on Iran and would cut off sanctioned Iranian banks from its network. This was a blow to the EU’s attempts to defy the U.S. sanctions.

The decision by SWIFT highlights the need for an SPV, France’s Le Maire told FT, but he refused to name countries that could host such a special vehicle. Yet, there have been expressions of interest, he told FT.
...

https://www.zerohedge.com/news/2018-11-08/france-takes-lead-protecting-iran-oil-trade-us-sanctions

 

[pmbug]

This will go nowhere, but it's interesting to note for posterity.

Venezuela will present its state-backed cryptocurrency Petro as a unit of account for crude oil trading to the Organization of the Petroleum Exporting Countries (OPEC) in 2019, the country’s oil company PDVSA reports on its Twitter Nov. 7.

The PDVSA has cited its president Manuel Quevedo, who also holds the position of Venezuela’s Minister of Oil and Mining, speaking about the future presentation:

"We will be presenting Petro to OPEC in 2019 as the main digital currency backed by oil."

According to the PDVSA, Quevedo also added that Petro will be offered as a unit of account for global crude oil trading, noting that all Venezuelan oil will be traded for Petro.
...

https://cointelegraph.com/news/vene...nmental-group-opec-as-unit-of-account-for-oil

 

[pmbug]

Russian energy majors are putting pressure on Western oil buyers to use euros instead of dollars for payments and introducing penalty clauses in contracts as Moscow seeks protection against possible new U.S. sanctions.

Seven industry sources told Reuters that Western oil majors and trading houses have clashed with Russia’s third and fourth biggest producers, Gazprom Neft and Surgutneftegaz, over 2019 oil sales contract terms during unusually tough annual renegotiation in recent weeks.

The development mirrors a similar stand-off between Western buyers and Russia’s top oil producer, Rosneft (ROSN.MM).

Earlier this week, trading sources told Reuters that Rosneft wants Western oil buyers to pay penalties from 2019 if they fail to pay for supplies in the event that new U.S. sanctions disrupt sales.

Now sources have told Reuters that Surgutneftegaz and Gazprom Neft have also clashed with their buyers over penalties and the use of euros and other currencies to replace the dollar in contracts.

“It is part of the same trend - the Russian oil industry is working on mitigating new sanctions risks. The buyers in turn argue they cannot carry those risks so we are trying to find compromises,” said one source with a Western buyer involved in negotiations, asking not to be named as the talks are confidential.
...
Several Western buyers have managed to agreed compromises with Surgutneftegaz and Gazprom Neft, but others are still in tough talks with the producers, the sources said.

All Surgutneftegaz’s contracts are bespoke and are negotiated individually in the Siberian town of Surgut by the firm’s management and visiting Western trading bosses.

The sources declined to name companies that have already reached compromise deals.

In one such compromise, a large European buyer agreed to the use of euros in payments in exchange for Surgutneftegaz dropping its demand for penalties from buyers who fail to pay for cargoes.
...

More: https://www.reuters.com/article/us-...ver-new-deals-as-sanctions-loom-idUSKCN1NE0FL

 

[pmbug]

Iran sanctions still loom large in potentially effecting a fundamental development in the petrodollar system:

Speaking to reporters on the sidelines of a weekly cabinet session in Tehran on Wednesday, Zarif said he had been informed during last week’s trips to Brussels and Geneva that Europe has made the final arrangements for the SPV and the financial mechanism will be established in the near future.
...

https://iranian.com/2018/12/05/special-purpose-vehicle-launching-soon-iran-eu/

That's from two weeks ago. Maybe just hot air. I can't find any other recent reporting indicating any real movement on the development.

Former Iranian Foreign Minister Seyed Kamal Kharrazi underlined the need for the European Union to implement its promise to establish the Special Purpose Vehicle (SPV) to carry out financial transactions with Iran.

"Everyone hopes that the mechanism will be implemented and Europe has promised this too; of course, Europe is expected to take practical steps," Kharrazi told FNA on Monday.

He added that based on Iranian Foreign Minister Mohammad Javad Zarif's talks with the European states, the latter has promised to implement the SPV by the yearend.

European Union Foreign Policy Chief Federica Mogherini announced last Monday that the EU would establish a mechanism to facilitate non-dollar transactions with Iran in the near future in a bid to bypass the sanctions imposed by the United States against Tehran.

"I will expect this instrument to be established in the coming weeks before the end of the year as a way to protect and promote legitimate business," Mogherini told reporters in Brussels.

Mogherini, however, declined to reveal more details on the financial mechanism.
...

http://en.farsnews.com/newstext.aspx?nn=13970926000439

Following Wednesday's unexpected and dramatic full and "immediate" withdrawal of all US forces from Syria, Turkey has announced it will not play ball on Iran sanctions. According to a translation of the Turkish president's words on Thursday during a previously planned summit with Iranian President Hassan Rouhani in Ankara, journalist Abdullah Bozkurt reports, "Turkish president Erdogan says Turkey won't support US sanctions on Iran which he claims puts regional security and stability at risk, vows to take all measures to minimize impact of sanctions on trade between the two countries, pledges support to Iran in difficult times."
...

https://www.zerohedge.com/news/2018-12-20/erdogan-vows-turkey-wont-support-us-sanctions-iran

 

[pmbug]

Remember post #483 from two months ago? ...

The U.S. dollar’s share of currency reserves reported to the International Monetary Fund fell in the third quarter to a near five-year low, while the euro’s share of reserves grew to its largest in almost four years, data released on Friday showed.
...

https://in.reuters.com/article/fore...serves-hits-near-5-year-low-imf-idINKCN1OR1DO

 

[pmbug]

India has begun paying Iran for oil in rupees, a senior bank official said on Tuesday, the first such payments since the United States imposed new sanctions against Tehran in November.
...
Iran is devising payment mechanisms including barter with trading partners like India, China and Russia following a delay in the setting up of a European Union-led special purpose vehicle to facilitate trade with Tehran, its foreign minister Javad Zarif said earlier on Tuesday.
...

https://www.reuters.com/article/us-...il-in-rupees-uco-bank-executive-idUSKCN1P21XF

 

[pmbug]

Iranian President's Chief of Staff Mahmoud Vaezi said on Wednesday that the European countries have apologized to Tehran for their inability to launch the Special Purpose Vehicle (SPV) in pursuit of facilitated banking transactions so far, adding that they are still working on the mechanism.

"The Europeans have apologized to us and said that we have distributed all our plans (among the European states so that the SPV would be implemented in due time), but the US pressures have delayed them," Vaezi told reporters in Tehran on Wednesday after a cabinet meeting.

He said the Europeans have assured Tehran that they are still pursuing implementation of the SPV, and reminded that EU Foreign Policy Chief Federica Mogherini had earlier promised that the mechanism would be launched before 2019.

In relevant remarks on Tuesday, Iranian Foreign Minister Mohammad Javad Zarif underlined continued cooperation with the European states to launch the SPV, but meantime, said his country would not wait for the EU and will further expand ties with its other partners.

"The Europeans have made efforts but they could not progress to the extent that we expected. We will cooperate with Europe on the SPV but will not wait for them and will cooperate with out traditional partners, including India, China and Russia, in line with the interests of the Iranian people," Zarif told reporters on the sidelines of his meeting with Indian Minister for Road Transport and Highways Nitin Gadkari in New Delhi.
...

http://en.farsnews.com/newstext.aspx?nn=13971019000738

The US has successfully cockblocked the SPV for now.

 

[rblong2us]

Hmmm

SPV - all countries launch it at the same time so uncle sam can't pick on one small euro country and apply sanctions ?

or has pressure from the US already killed the idea ?

 

[pmbug]

It would appear that US pressure is currently surpressing it's genesis. It would be wild if they developed some sort of distributed solution that wasn't tied to one specific location (country). But these people tend to think in centralized (authoritarian) models, so I doubt that's really even been considered.

 

[pmbug]

The European Union is on the verge of launching an alternative channel to send money to Iran that would sidestep U.S. sanctions against the Islamic republic, Germany's foreign minister said Monday.
...
German Foreign Minister Heiko Maas told reporters in Brussels that "as far as the special purpose vehicle is concerned: it will be registered, it has not yet been registered, but I would say that the implementation of our plan is imminent."

Maas said the EU's aim is to ensure that "business not sanctioned by the U.S. can be upheld, and there is a suitable instrument for international payments." He said that Germany has been working notably with Britain and France but also other EU partners in recent months to set it up, without providing details.
...

https://amp.miamiherald.com/news/business/article225178180.html

Hot air or stone cold reality? Time will tell.

 

[pmbug]

Looks like stone cold reality...

Germany, France and Britain have officially set up a European mechanism to facilitate non-dollar trade with Iran and circumvent U.S. sanctions, two diplomats said on Thursday.

The EU has been preparing the system, in effect a clearing house that avoids monetary transfers in dollars between the EU and Iran for months although it is unlikely to become operational for several months due to technical details.

German broadcaster NDR reported that the European Special Purpose Vehicle (SPV) would be named INSTEX-Instrument In Support Of Trade Exchanges.
...
The entity is not likely to revive trade with Iran to begin with as its focus will primarily be food, medicine and humanitarian, with transactions small. It will not be used for oil-related transactions that have been hit hard by U.S. sanctions.
...
France and Germany had taken joint responsibility for the SPV. A German banker would head up the vehicle, which would be based in France. France, Britain and Germany will be shareholders and they hope other states will join.

https://www.cnbc.com/2019/01/31/ger...echanism-for-trade-with-iran.html?forYou=true

So, it won't be used for trading oil... for now...

 

[rblong2us]

France and Germany had taken joint responsibility for the SPV. A German banker would head up the vehicle, which would be based in France. France, Britain and Germany will be shareholders and they hope other states will join.

would be ........... will be........... they hope others will join ........

stone cold reality ?

 

[pmbug]

A surge in gold purchases by central banks to the highest since 1967 helped push global demand for the metal up 4 percent last year, the World Gold Council (WGC) said on Thursday.

The world consumed 4,345.1 tonnes of gold in 2018, up from 4,159.9 tonnes in 2017, the WGC said in its latest quarterly demand trends report.

Driving the increase were central banks which bought 651.5 tonnes - 74 percent more than in 2017 and the second highest annual total on record - as countries including China and Poland joined Russia, Turkey and Kazakhstan in adding to their reserves, the WGC said.
...

https://www.reuters.com/article/us-...18-than-any-year-since-1967-wgc-idUSKCN1PP0EN

You would think with all that buying, the gold price might have risen significantly in 2018...

 

[rblong2us]

You would think with all that buying, the gold price might have risen significantly in 2018...

didnt do bad in £sterling terms-

£ 950 - £1007 on the year and well up from the October low of £904

 

[pmbug]

So Venezuela's experiment with the supposedly oil backed "petro" is still nascent:

...
Venezuela is notably one of the only nations to have launched a national cryptocurrency, and U.S. President Donald Trump ordered sanctions against the petro in March 2018, soon after it launched.

Nicolas Maduro, the nation’s president, has since made a number of efforts aimed to force the adoption of the oil-backed petro, both at home and abroad.

Back in December, Maduro said that the nation would move to sidestep the U.S. dollar and use petros for oil sales starting this year, soon after adding plans to appeal to OPEC for the token to become the “digital currency for oil.”

The country has also reportedly begun converting pension and salaries into petro from its fiat currency, the sovereign bolivar. Venezuela started selling petro to citizens last October via a government portal. Further, banks have been ordered to use the token, as have some businesses.

https://www.coindesk.com/venezuelas-crypto-exchanges-miners-must-register-under-new-rules

Now comes news that Iran is supposedly rolling out a gold backed crypto:

Four banks in the Islamic Republic of Iran have developed a gold-backed cryptocurrency called PayMon, financial news website Financial Tribune reported on Jan. 30.

According to the article, the crypto asset has been developed in cooperation with the Parsian Bank, the Bank Pasargad, Bank Melli Iran and Bank Mellat. Iran Fara Bourse, an over-the-counter (OTC) cryptocurrency exchange, will reportedly list the new cryptocurrency.

The director of Kuknos, the blockchain company taking care of the technical aspects, said that the new crypto asset is a way to tokenize assets and excess properties of the banks. A billion PayMon tokens will be initially released, according to the article.

As Cointelegraph recently reported, Iran is allegedly negotiating with Switzerland, South Africa, France, the United Kingdom, Russia, Austria, Germany and Bosnia to carry out financial transactions in cryptocurrency.
...

https://cointelegraph.com/news/four-iranian-banks-support-gold-backed-cryptocurrency

 

[pmbug]

Today at 830am the Treasury Borrowing Advisory Committee (aka the TBAC ...) "released minutes of its Jan. 29 meeting held at the Hay-Adams Hotel in conjunction with the U.S. government’s quarterly refunding announcement.
...
... the most interesting part of the TBAC minutes was the discussion of the "unique challenges" faced by the Treasury over the medium term, especially the possibility of significant financing gap over next 10 years amounting to over $12 trillion and the potential need for more domestic investor participation if foreign reserve growth slows.

Specifically, the TBAC cautioned that the Treasury’s financing needs are expected to increase significantly even without factoring in recession possibilities over the next decade. Here, the TBAC warns that deficits to the tune of $1-$1.5trn a year, and cumulatively over $12trn, over the next decade, are coming and will have to be funded in the bond market. Meanwhile, as noted recently, the CBO stubbornly refuses to forecast a recession in the next decade, instead projecting a steady 1.5-2% real GDP growth over the next 10y. While the TBAC did not take a position on this laughable assumption, it warned that deficits typically rise 2-5% of GDP in recessions, which would translate to additional deficits of $0.5-1trn at current GDP levels, and warns that "these borrowing needs have to financed in the context of already high global dollar debt exposure."

But the bigger problem is that in the context of soaring deficit funding needs, the TBAC is worried that "foreign investors already hold significant dollar debt" which is why the US will have to increasingly rely on domestic savings to fund its future budget deficits.

The TBAC notes, tongue in cheek, that while the "USD is still the dominant reserve currency", reserve managers have been very gradually increasing allocation to other currencies, and that the USD share of FX reserves has steadily come down from 72% in 2000 to 62% now. It also pointed out that other countries with significant debt issuance needs (as a share of GDP) depend far more on domestic savings. As a result, "the Treasury should plan to meet financing needs more domestically than in the recent past."

Even more concerning, the TBAC notes, is that global FX reserves growth has stalled and global trade, as a share of world GDP, appears to have peaked, while underscoring what may be the most important transition in the global economy in decades, namely that China is now running a flat current account with the rest of the world, ...

As a result of these transformations, there has been an even lower official foreign demand for USTs, ...
...
While there are no definitive answer to the very concerning questions brought up by the TBAC, keep a close eye on future TBAC presentations and especially any future reference by this all-important committee made up of the most important banks and hedge funds in the US...

... which appears to be increasingly concerned not only about how the US will fund its exploding debt deficits but also about the reserve currency status of the US Dollar.

https://www.zerohedge.com/news/2019...illion-us-deficits-and-dollars-reserve-status

 

[pmbug]

...
Conclusion:
So, the Fed isn't buying and has in fact rolled off a massive quantity of mid duration US debt, foreigners aren't buying, banks aren't buying, insurers aren't buying, American's aren't buying savings bonds, state nor local governments are buying, and there is little to no spread to compensate any leveraged "investors" to buy mid to longer duration US debt. Yet the Treasury tells us that "other investors" (suddenly became hyper-interested just as QE ended) and have come up with over $3 trillion in cash since 2015 to buy low yielding US debt like never before?!? And this massive shift in buying into Treasury's has inexplicably had little to no negative impact on other asset classes (stocks, real estate, commodities)???


Is there any party (aside from central banks or central bank conduits) that could come up with such gargantuan quantities of dollars to yield so little and do it essentially without leverage??? Tell me again, who buys US Treasury's...and particularly who buys mid and longer duration US debt (responsible for setting the 30yr mortgage rate)??? Otherwise, this may sadly be the smoking gun of an active, accelerating, and perhaps unraveling Ponzi scheme?

More (details): https://econimica.blogspot.com/2019/02/treasury-bulletinnobody-buys-us.html

 

[pmbug]

Looks like the concerns raised by the TBAC are getting serious attention:

...
When Jerome Powell and the president sat down for dinner at the White House in early February one wonders what was on the agenda. Treasury Secretary Steven Mnuchin, who also attended the dinner along with Fed vice-chair Richard Clarida, joked that having the Fed chairman over to dinner was “somewhat of a covert operation … so it didn’t create speculation.” The Fed press statement that followed went to great lengths to assure Wall Street and the rest of the world that nothing of consequence happened. Individuals at this level of government, though, do not have hastily-called, high-profile meetings at the White House simply to socialize and attend to their friendship.

The rhinoceros in the room could very well have been how the federal government will go about financing the $12 trillion in debt Goldman’s Beth Hammack earlier brought to the Treasury Secretary’s attention and what role the Federal Reserve intends to play in the process. China and Japan, America’s two largest financiers by far, have withdrawn from the market and there is no certainty as to when they might return. That leaves domestic U.S. private investors and financial institutions to fill the yawning gap and, failing that, the Federal Reserve with a new round of quantitative easing.

How the $12 trillion debt bombshell is handled will carry very large implications for the stock and bond markets, the value of the dollar and consequently the price of gold. Some would say we are a long way from another round of quantitative easing, but we will remind our readers it was only a few months ago that we were assured of at least two additional rate hikes in 2019 and stepped-up quantitative tightening. Circumstances and response, as we have seen over the past few weeks, can change in a heartbeat. Ominously, San Francisco Federal Reserve president Mary Daly told reporters last week that the Fed is considering quantitative easing as a permanent option in the monetary toolkit and not, as Bloomberg put it, “just as a last-ditch measure to deploy in emergencies.” (Please see Balance Sheet Could Be in Regular Fed Toolkit/Bloomberg/2-8-2019)
...

http://www.usagold.com/cpmforum/nv1001-feb19/

 

[rblong2us]

Gold did well in QE1 and QE2 but fell back hard during QE3

Why should I get excited about QE4 ?

 

[pmbug]

So, the NY Fed has a blog ...

...
In sum, the period since the global financial crisis has not seen a widespread change in the international monetary architecture. While the dollar’s international status may have declined in some pockets, overall it remains dominant. Nevertheless, recent trends bear watching as history suggests that a currency’s dominant status is not immutable.

https://libertystreeteconomics.newy...llars-global-roles-where-do-things-stand.html

It didn't use to be cool to talk about this issue in public.

 

[pmbug]

Venezuela hopes to create a trade bloc consisting of China, India and Russia to help the South American country settle oil payments in currencies other than the dollar, its oil minister said on Tuesday.
...

https://www.reuters.com/article/us-...-create-non-dollar-trading-bloc-idUSKCN1Q11GF

Is this significant? I suppose it depends upon how long Maduro and the new guy struggle for control of the country. If Maduro somehow maintains a grip on the country for the long term, then this could eventually develop into something (assuming that the country doesn't devolve into chaos and they keep producing/shipping oil). I just have the feeling that Maduro isn't going to last and the new guy will reverse course after the USA lifts sanctions.

 

[pmbug]

would be ........... will be........... they hope others will join ........

stone cold reality ?

I happened upon this press release from the UK:

https://www.gov.uk/government/news/...e-new-mechanism-to-facilitate-trade-with-iran

Seems like they (both Europe and Iran) still have a lot of work to do in actually building the INSTEX platform.

 

[pmbug]

I think this is an ominous sign. In the fallout of the 2007/2008 crisis, there was all kinds of talk amongst the Davos/G20 crowd about different ideas/plans for a NWO monetary system. That talk seems to have faded away as ZIRP (and, in some places, NIRP) seemed to stabilize the system.

Today, we have credit bubbles/stresses growing everywhere - zombie firms/junk bonds, consumer credit debt, headwinds for future treasury issuances, etc. The main global financial institutions (BIS, IMF, Fed, etc.) have all published warnings about the lack of powder to manage the next financial crisis. Still, we don't see chatter about any NWO monetary systems. Has the issue been decided? Or is the world too polarized now with all the nationalist political movements?

In any event, I woke today to find two items published by pillars of the financial establishment promoting gold to weather the next crisis. First, Rogoff wrote a piece for the World Gold Council. And the following was published in The Economist:

...
Now imagine the world economy goes into a tailspin. There is panic selling of risky assets. Where should you seek safety? Cash is the most liquid asset; but which kind? The dollar is a natural focal point. Yet America’s fiscal indiscipline and its sizeable current-account deficit might give pause. Other currencies have their faults, too. There is one other destination you might consider, if only because others are starting to think the same way. And that is gold.
...

https://www.economist.com/finance-a...rikes-where-should-you-hide-the-case-for-gold

Maybe I missed something, but it really seems like they are getting the word out - the next crisis will be unmanaged, protect yourself with gold. It's going to be a bumpy ride.

 

[pmbug]

Damn, FT... That's harsh...

While many investors are fretting over what stage of the business cycle we are in, the global monetary system is collapsing — with a whimper initially, but ultimately a bang. ...
...
... Central bankers have bought growth by sacrificing financial stability.
...
The other side of low growth in world foreign reserves is the low growth in the money supply of exchange-rate targeting regimes. These problems are particularly acute in China, with broad money growth at its lowest in the post-Mao era. The country’s debt-to-GDP ratio is rising at probably the fastest rate ever for a big economy in peacetime. This is the economy that we are told is de-gearing and reflating! It is not, and the burden of the economic adjustment enforced by the end of the growth in its foreign exchange reserves, and hence money supply, will probably be deflationary and will involve debt default. China will probably move to a flexible exchange rate, thus creating the freedom to grow and inflate away these debts. It is that exchange-rate adjustment that will destroy the current global monetary system.

The key consequence of this collapse will be the destruction of the euro. ...

In the financial, political and social maelstrom of a eurozone dissolution, investors should not expect property rights to be respected. The UK, where democracy and the rule of law will remain largely unchallenged, will become an attractive safe-haven investment for European investors facing increasingly authoritarian regimes and property sequestration on the mainland. Monetary collapses bring social and political ruptures and we now face two such collapses. It would be naive for any investor to assume that “government of the people, by the people, for the people” will survive such ruptures. The risks remain highest in Europe.

https://www.ft.com/content/271f4a2e-17d5-11e9-9e64-d150b3105d21

 

[pmbug]

The dollar’s share of global central-bank reserves slumped to the lowest level since 2013 while holdings of the Chinese yuan rose for the fifth quarter in the past six, IMF data showed Friday.

The U.S. currency accounted for 61.7% of global allocated foreign-exchange reserves in the fourth quarter, down from 61.9% and the tenth decline in the past 12 quarters according to the IMF's Currency Composition of Official Foreign Exchange Reserves (COFER) for Q4 2018 report. The drop occurred despite a 1% jump in the value of the dollar in the fourth quarter. The euro, yen and yuan each gained as a share of allocated reserves. While modest at just 1.9%, reserve allocation to the Chinese Yuan has been increasing rapidly and is now almost double where it was two years ago.
...

https://www.zerohedge.com/news/2019...lerates-central-banks-dump-dollar-q4-buy-yuan

 

[pmbug]

I guess MBS has a death wish...

Saudi Arabia is threatening to sell its oil in currencies other than the dollar if Washington passes a bill exposing OPEC members to U.S. antitrust lawsuits, three sources familiar with Saudi energy policy said.

They said the option had been discussed internally by senior Saudi energy officials in recent months. Two of the sources said the plan had been discussed with OPEC members and one source briefed on Saudi oil policy said Riyadh had also communicated the threat to senior U.S. energy officials.

The chances of the U.S. bill known as NOPEC coming into force are slim and Saudi Arabia would be unlikely to follow through, but the fact Riyadh is considering such a drastic step is a sign of the kingdom’s annoyance about potential U.S. legal challenges to OPEC.

In the unlikely event Riyadh were to ditch the dollar, it would undermine the its status as the world’s main reserve currency, reduce Washington’s clout in global trade and weaken its ability to enforce sanctions on nation states.

“The Saudis know they have the dollar as the nuclear option,” one of the sources familiar with the matter said.
...

https://www.reuters.com/article/us-...il-trades-to-stop-nopec-sources-idUSKCN1RH008

 

[rblong2us]

oh no we didnt (-;

https://www.zerohedge.com/news/2019-04-08/saudi-arabia-denies-it-threatened-abandon-petrodollar

 

[rblong2us]

so SDR / one world currency gets another airing ?

https://www.zerohedge.com/news/2019...er-secretary-general-calls-one-world-currency

 

[pmbug]

so SDR / one world currency gets another airing ?
...

...
And in the master's chambers
They gathered for the feast
They stab it with their steely knives
But they just can't kill the beast.
...

So the idea isn't dead, it just sat on the back burner until we caught back up to the proverbial (kicked) can.

 

[pmbug]

As if to mark one year since President Trump formally withdrew from the JCPOA - better known as the "Iran Deal" - last May, the foreign ministers of the UK, France and Germany, as well as EU foreign policy head Federica Mogherini, on Saturday issued a statement condemning the White House's decision, and vowing once again to abide by the terms of the deal.

The statement is the latest sign that Trump's decision to reimpose sanctions on Iranian oil exports could set up the US for a showdown with its allies in Europe that could accelerate the de-dollarization of the global financial system, as Europe continues to work on an alternative payments system to the Treasury-dominated SWIFT network.
...

https://www.zerohedge.com/news/2019...-buying-iranian-oil-us-revokes-export-waivers

 

[pmbug]

So you might recall that back in November the USA issued 180 day waivers/exemptions to some countries to continue trading for oil with Iran. The 180 days ends this month and the USA is not renewing them. Might explain the USA's movement of military assets to the region...

The White House said waivers for China, India, Japan, South Korea and Turkey would expire in May, after which they could face US sanctions themselves.

This decision is intended to bring Iran's oil exports to zero, denying the government its main source of revenue.
...

https://www.bbc.co.uk/news/world-middle-east-48011496

May 6 (UPI) -- The USS Abraham Lincoln Carrier Strike Group and a bomber task force are being deployed to the Middle East in response to threats to U.S. troops by Iran or their allies, American government officials said.

The United States is responding to "a number of troubling and escalatory indications and warnings," White House national security adviser John Bolton said. He didn't provide details but said the United States wants to send a "clear, unmistakable" message to Iran that "unrelenting force" would meet any attacks against U.S. troops or allies.
...

https://www.upi.com/Top_News/World-...e-East-to-counter-Iran-threats/8281557138911/

The standoff between the Trump administration and Iran is escalating, and Europe is caught in the middle. The U.S. is exerting pressure through renewed economic sanctions, and hardliners in Tehran are issuing fiery threats of retaliation.

Brussels and national governments in the U.K., France and Germany, meanwhile, have been criticized by both sides for promising to preserve trade with Iran while also treading softly with the Americans to avoid a full-blown diplomatic crisis. Europeans “speak eloquently,” Iran’s foreign minister Mohammad Javad Zarif said in February. “They also need to walk the walk.”

But it would be wrong to dismiss Europe’s efforts as hopeless.

A big source of contention for both Washington and Tehran is Instex, a special-purpose vehicle unveiled by Paris, Berlin and London in January. Its ultimate ambitions are bold: to keep trade between Iran and Europe going without relying on cross-border financial transactions (which might fall foul of the U.S.). While not explicitly a sanctions-busting vehicle, it was clearly designed with President Trump in mind. It was his re-imposition of the U.S. trade ban that led to Iranian banks being cut off from the SWIFT banking network, and to international businesses scrapping their investment plans in the Islamic Republic.

By using Instex like a central clearing house, the idea would be that buyers and sellers in Iran and Europe could get their money without making transfers into and out of the Middle East country. It’s a complicated system, but in a very simplified form you could imagine having a European trader who wants to buy gas from an Iranian supplier and a European manufacturer who wants to sell aircraft parts to an Iranian company. Instead of the trader paying the Iranians for the gas, they would transfer the money to their fellow European manufacturer (in lieu of payment from its Iranian customer). At the same time, the Iranian aircraft company would pay its compatriot gas supplier for the supplies sent to Europe. Hence no cross-border money flows.

To be clear, Instex right now only wants to deal in humanitarian essentials — medicine and food, for example — but Europe has said it wants to expand the facility in the long term. Combined with new “blocking regulations” that make it an offense for EU businesses to comply with U.S. extraterritorial sanctions, there’s a loud message here that Europe’s leaders want to go their own way.

Criticism has focused on the everyday practicality of using Instex beyond those humanitarian aims, plus the wisdom of Europe resisting its key NATO ally, whose dominant currency affords it huge extraterritorial reach when waging economic war. For the Trump administration, the special purpose vehicle is a misguided attempt to “break” American sanctions and offer cover to the Islamic Republic. For Iran, it’s a paper tiger. Zarif says Europe has dragged its feet and is clearly reluctant to launch the system.

Neither complaint is entirely fair. Instex is obviously a work in progress, a sketch on paper more than a reality. But for London, Paris and Berlin, whose unity tends to crumble under U.S. pressure, a public commitment to this vehicle is a kind of success in itself. And it is being taken seriously by parts of the American establishment, who are aware of any risks — however distant — to the dollar’s dominance. “The plumbing is being built and tested to work around the United States,” former Treasury Secretary Jack Lew warned in February. “There will increasingly be alternatives that will chip away at the centrality of the United States.”
...

https://www.bloomberg.com/opinion/a...-sidesteps-the-u-s-finance-system-with-instex

 

[pmbug]

We, the High Representative of the European Union and the Foreign Ministers of France, Germany and the United Kingdom, take note with regret and concern of the decision by the United States not to extend waivers with regards to trade in oil with Iran. We also note with concern the decision by the United States not to fully renew waivers for nuclear non-proliferation projects in the framework of the JCPoA (Joint Comprehensive Plan of Action).
...
The remaining participants to the JCPoA are committed to working on the preservation and maintenance of financial channels and exports for Iran, together with third countries interested in supporting the JCPoA. We are determined to pursue efforts, together with other European partners, to enable the continuation of legitimate trade with Iran, including through the operationalisation of the special purpose vehicle "INSTEX". In this regard, the shareholders are committed to significantly increasing their financial contributions to INSTEX’s operational budget. We encourage all countries, including Russia and China as JCPOA participants, to make their best efforts to pursue the legitimate trade that the agreement allows for, through concrete steps.

We recall the European Council conclusions adopted on 4 February 2019 and EU’s support for the development of EU-Iran relations in areas of common interest. Complementary to preserving the JCPoA, we support a comprehensive approach with Iran with a view to addressing all issues of concern, including its contribution to regional instability and its missile activities.

https://eeas.europa.eu/headquarters...n-and-foreign-ministers-france-germany-and_en

Whoa.

 

[pmbug]

So Trump's tariff war with China is supposed to be a hard nosed negotiating tactic. Some pundits claim it's just the next step in an inevitable crisis escalation which will eventually lead to a shooting war. I don't know if the latter is inevitable, but the stakes appear to be rising...

... The Global Times reports that Chinese scholars are discussing the possibility of dumping US Treasuries and how to do it specifically. ...

https://www.forexlive.com/news/!/china-says-to-raise-tariffs-on-some-us-goods-from-june-1-20190513

Direct link: https://twitter.com/HuXijin_GT/status/1127909254134767616

 

[pmbug]

The contemplation by Asian finance leaders to add the Chinese and Japanese currencies to a regional foreign reserves buffer fund is the latest sign that the trade war is causing countries to slowly move away from dependence on the US dollar.
...
The 10 members of the Association of Southeast Asian Nations plus China, Japan, and South Korea, together known as “Asean+3”, were reported earlier this month to be considering including the yuan and the yen to their Chiang Mai Initiative Multilateralisation (CMIM) scheme, a framework for multicurrency swap arrangements.

The US$240 billion CMIM scheme was established in response to the 1997 Asian financial crisis to serve as a safety net that provides US dollar support to any one of the countries in the event of a liquidity crisis.
...
The Asean members are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

The review of the CMIM scheme to add additional regional currencies into the fund, amid the escalating US-China trade war, underscores not only growing efforts in Asia to bolster intraregional financial linkages, but also the regional countries’ intent to reduce reliance on the US dollar-based financial system.
...

https://www.scmp.com/economy/china-...-trade-war-starting-erode-us-dollar-dominance