Tuesday, January 27, 2015

Weeds of CONfusion Among the F.O.U.

Current events must seem utterly confusing to those who view the world through the aggregate sensationalism of mainstream media hyperbole posing as some objective "reality".

By contrast, the actions of central bankers - though they may seem questionable lately - are far more measured and responsible in terms of extending (if even by pretending) the timeline of the current dollar-centric system.

For example, why reduce debt issuance at all, when the mere mention has the same impact - a telling experiment for what an actual liquidity shock might look like, and what measures to take in response.

We have pundits exclaiming that "the franc has been crushed" (though Swiss exports are certainly no great victim here) and the dollar index at 95 foretelling the next Lehman-sized crisis. Russia's economy has been "downgraded" in S&P "dollar terms" and Gold in euro rises while being subdued in dollar. The volatility we see in many related markets has losers wailing at the great wall of grief.

Not to worry. We will not always see the global economy and all its many facets purely in "dollar terms". And yet, amazingly, though it is never said or even realized, ALL of the above is viewed and shown in dollar terms.

Could you imagine the daily news as viewed by a global economy expressed in Swedish krona or Qatari riyal? ruble? yuan? euro perhaps?

Let us hope that when the real wolf of dollar-denominated hyperinflation comes, these "boys who cried" do not jump from the 13th floor all at once, making last year's "accidental death" toll among commercial banking actors a mere warm up for derivative failure 2.0.

The coming transition of dollar use from reserve to non-reserve status will certainly take its toll upon the unprepared. And 2008's "avoidance measures" will hardly serve to inform that event, since there is little remaining dry powder to extend and pretend with ... as the dollar climbs to 120.

The idea has always been to transition in as orderly a way as possible, and all players on the world stage who are in a position to matter do agree - despite the political posturing, ALL political will and the private capital that partners it does seek an orderly transition:
A new reserve currency with gold valued at super high levels will support debt transition into that next currency system far better than a restructure of real US economic production repayment ever will. Such an avenue of escape for investors and world traders completely cuts off any attempt by the US of engineering a deflationary landing. 
Oil producers / backing Euro Zone development / backing super high physical gold / will change the trading dynamics and gold perception as never before. 
CBs may toy with the idea of another US recession cycle, as a perception seed, but the rate rise will never come (something else will first). AND ... it is not just "oil producers" who change this dynamic. As we see today, the dichotomy is producers (of anything) vs. consumers (of debt), and emerging market economies who have geared up production in the physical plane are vastly different than the issuer of "debt as wealth" as a systemic foundation.

In the end, all contractual debt must be somehow transitioned from "in dollar terms" (debt based) to "in gold terms" (equity based). Debt will still exist, as will the debt-based currencies, but our concept of wealth will change, as will the lens through which we currently view the world (in dollar terms).

For the CBs (and BIS) quite a challenge lies just ahead. Never again will the debt of a profligate nation be held as a systemic reference for global wealth. Not in several lifetimes after this ...

There is still time to dust off the lawn chairs as our CB gardeners pluck the weeds of confusion from among the Flower of Understanding. In time, our Garden of Wisdom will again thrive.

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