U.S. Debtor Meets G20 Creditors at the Dollar’s Funeral
- Jim Willie of the Hat Trick Letter gives his view on the current G20 meeting :
US syndicates remain beneficiaries and administrators, while regulators and law enforcement chase advocates of free markets. Worse, the negligent, responsible, and corrupt remain in charge within the US Dept Treasury, as representatives from monoliths Goldman Sachs and JPMorgan themselves. Reform is impossible with these people still in charge. Nothing has changed on the power structure inside the USGovt, nor the controlled funnel of hundreds of billion$ in funds. The US president does not seem to understand that the global financial system designed atop the US Dollar has broken irretrievably, and must be scrapped, not adjusted.
For several months, the US Federal Reserve has been doubling duty as a virtual US banking system. For the past several years, a Shadow Banking System has operated without regulatory oversight, which is so deeply engrained with corruption that one cannot adequately describe its depth of depravity to commoners. Yet the US president acts as though the US remains in the dominant position in global finance, when the entire world has rejected its catbird seat post. THE UNITED STATES NO LONGER SITS IN THE PREMIER POSITION. That is precisely why so much conflict has come and will continue to come. The G20 London Meeting is a funeral.
Why is the G20 Meeting a turning point? First of all because the US$-based global financial structure is broken. In plain words, the US Dollar is totally broken as the global reserve currency, fully discredited, and the anchor dragging down the national banking systems in scores of countries. Also, because the Elite G7 or G8 Meetings, where the banking power has been greedily and maliciously and jealously guarded, is replete with bank leaders whose countries are crippled by insolvent banks and outsized national debts. Who owns the largest portion of the G8 national debts? The G20 countries, the developing nations, the upstarts who up to now have owned zero voice in global banking, PERIOD! Imagine a bankruptcy hearing where the creditor (guy who owns the debt) does not have a seat at the bankruptcy court, has no attorney to argue on its behalf, and must listen to rigged outcomes from a rigged game. The global forces toward deep change have never been greater.
Thus a turning point. Creditors have the option of simply refusing to purchase any more USTreasury Bond debt. To a great extent, that is what is occurring right now. The US responded last week, as its Federal Reserve announced $1050 billion in monetized USTreasury Bond and USAgency Mortgage Bond purchases. At least $1 trillion will be printed for monetized bond purpose each and every quarter from here onward, as is my forecast. The USGovt will destroy the credibility of the US Dollar, but at least offer lifeblood to the crippled US Economy, at the cost of upcoming price inflation. The United Kingdom has no such privilege. They suffered an important Gilt Bond failed auction last week, one which brought great embarrassment upon them.
Last week, China was highlighted at turning the global US Dollar tables. They have begun to displace the US$ within their domestic banking system, in favor of the Chinese yuan. Actually, they will soon be issuing Chinese Govt debt securities denominated in yuan currency. Doing so involves wave after wave of conversion of USTBond securities into cash, then conversion further in to Yuan Debt securities, which still need a new name. How about Dragon Bonds for a name??? The Chinese will then wear and presumably use the great currency boot, since all economies that wish to purchase Chinese products must purchase Chinese Govt bonds!!!
The latest big currency news is between the central banks of China and Argentina. They reached an agreement for a three-year, $10 billion currency swap, disclosed by the Chinese Central Bank Governor Zhou Xiaochuan. ….. The move follows swap accords between China and Indonesia, South Korea, Hong Kong, Malaysia, and Belarus. The agreement broadens Argentina’s access to foreign currency reserves in order to achieve stability. Argentina was excluded last autumn 2008 from the US Dollar Swap Facility program created by the USFed for emerging markets, which were designed to aid Brazil and Mexico. Watch Venezuela and Iran be next for Chinese swap stations. One can conclude that China is expanding its stations globally for creating the Chinese yuan as a global reserve currency in competition with the US Dollar See the Bloomberg story (CLICK HERE ).
For years, the IMF has granted loans denominated not in US Dollars but in Special Drawing Rights, which often function within various currency denominations, if not a basket of such currencies. The SDR formally is an international reserve asset already in usage. The SDR has been put in focus, if not under the microscope lately. Russia has formally suggested that the IMF be used to establish a new global currency system, to replace the defunct and broken US Dollar system, and to use the SDRights as a new formal basket for global banking and commercial settlements. My belief is that Russia has used the concept as a straw man, just to place emphasis away from the US Dollar Once accepted, the concept can morph to another new currency suddenly. China has endorsed the SDR concept raised by Russia as well, to gain credibility.
My view has been consistent for months. Unless and until the foreign creditor nations distance themselves from a US$-based banking and commercial system, they run enormous risks. Their banking system, their financial markets, their economies, their standard of living, even their political stability, will all remain at chronic heightened risk. Alternatives are extraordinarily difficult, challenging, and daunting to design, construct, and implement. A system built after World War II was perverted in profound manner when in 1971 Nixon abrogated the Bretton Woods Accord in a single betrayal stroke. That manoeuvre was one of the most important violations of a treaty in modern history. It declared the United States as global financial dictator, enforced by a powerful USMilitary, aided by a large strong economy. It perversely invited all major economic nations of the world to join in managing free money off a printing press, of course with inherent risk.
CREDITORS DEMAND BANK POWER
For many years recently, the G20 Meeting has served as a forum for paying mere lip service to the raft of foreign creditor nations. …… HOWEVER, THESE EMERGING NATIONS, THESE CREDITOR NATIONS, THESE SMALLER LESS POWERFUL NATIONS, WHICH COINCIDENTALLY DO NOT HAVE MILITARY FORCES OF THEIR OWN, HAVE NO GLOBAL BANKING POWER, HAVE NEVER HAD ANY GLOBAL BANKING POWER, BUT NOW ARE DEMANDING GLOBAL BANKING POWER. Such is the revolution triggered in London this week.
Creditor nations demand a more solid reliable global reserve currency, or currencies. They demand some hard asset component to the new reserve currency to be installed, like one backed by a basket that includes at least gold and crude oil. This would be sufficient to lift the gold price substantially, far above its current range, and far higher than a mere $1000 per ounce. The Chinese are the clear spearhead, uninhibited by US threats. The crowning blow against the US Dollar supremacy will come when Persian Gulf nations install a new hard asset currency. At that time, one quarter of the world will pay for crude oil in a hard asset currency with a gold component. That is a spike in the heart for the US Dollar founded in a unipolar world. The G20 Meeting intends to make the statement that the unipolar world is dead on the financial stage. That is their agenda. The US agenda is to preserve the system through reform.
US MUST ACCEPT ROLE AS DEBTOR
The clear challenge facing the G20 Meeting is to bring awareness to the United States that the system is broken, that the US is no longer dictating policy, and that the US must integrate many more countries into important global banking bodies. However, much bigger tasks come. The United States must accept that the US Dollar can no longer function as before, cannot serve as the primary and only global reserve currency, and must share reserve currency status with other regionally crucial currencies.
The new multi-polar currency world must be hatched and launched. Defiance and stubbornness by the USGovt can no longer be tolerated. The United States admits to operating a Shadow Banking System that is abhorrent to any credible or justifiable system. THE JIG IS UP!!! If the USGovt does not cooperate with alternative global reserve currency usage, then it will be bypassed, with associated cost. That cost will be lost respect, lost creditor cooperation, and certain economic consequences within the US Economy If not careful and cooperative, the US will find itself increasingly isolated, which is precisely my forecast. This direction is consistent with a shove down the staircase into the Third World, where credit shortages and supply shortages and poverty persist.
The quintessential problem, plainly stated, is the United States Govt leaders and officials insist on sitting apart from the debtor nations. They must join the debtors, and be treated in similar fashion. They must accept terms dictated to them. They must accept and endure a much lower standard of living. They must institute policies to rebuild the industrial base of the US Economy. They must write off trillion$ in bad debt, including some USTreasury debt. They must liquidate failed banks and corporations that are not in the least functional or competitive. They must redirect priorities away from military and defense, and toward capital formation, industrial production, and job creation, even if initially at prison facilities. The entire economic structure and financial structure has suffered a death experience, one not properly acknowledged. In my view, the US banking system died in September 2008, never to be revived from its terminal insolvent state. In my view, the US Economy suffered a death experience, but with a lagged time period. We are witnessing the death now. Its downward spiral is unmistakable. Each month shows worse data than the previous. The degree of doctoring data has escalated to unseen levels, like with seasonality adjustment that amplify raw data many-fold, not just many percent.
….. The bank losses have not ended, not even close. Prime mortgages are defaulting. Commercial mortgages have finally begun to default. Job cuts, home foreclosures, and retail shutdowns result in feedback loops. The underlying millstone remains US housing prices, down a record 19% in January. The jobless rate is 17% if one counts those without jobs. An expected 125k retail shops are expected to shut down in 2009. Aid to mortgage holders on Main Street stands at a trickle. The bankers must prevent revelations of trillion$ in mortgage bond fraud and counterfeit, so the mortgage assistance is mostly talk. And Geithner wants the power to kill whichever financial firms he sees fit. Things are careening downhill. The US Dollar deserves no respect. Gold deserves it instead. Foreign creditors harbor growing gold accounts and greatly dislike what the US does to suppress its price as it continues to hold it in contempt.
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