Monday, February 6, 2017

Political Balance

There was a point made long ago about fiat currency, our modern digital and paper money: Fiat currency, being debt-based, represents a "claim in the system" vs. "payment in full". Needless to say, for a "claim in the system" to have value, it must be thought to have future value to complete a purchase (trading the currency for something one want's or needs). But if the currency cannot complete the trade, it's function is lost and thus, so is its value.

Today, years of "strong dollar policy" have created an epic imbalance of dollar denominated "claims in the system" which hundreds of trillions in fiat denominated derivatives (in part) attempt to keep in balance. This status quo position has afforded the United States an exorbitant privilege which extends beyond purely financial or economic advantage. As we have discussed before in these annals, the international usage demand of dollars has not only kept the dollar strong, but has allowed it enormous political influence around the world - and that political influence is a direct reflection of the political will of the dollar's issuing authority.

For those new to these writings (welcome) notice I have made the distinction between "issuing nation" and "issuing authority" because in our world of privately owned central banks, a nation's "political class" has less to do with monetary policy than in times past, and even less to do with the people which that political class was once presumed to serve. That said, global fascism still presumes some degree of partnership between government and corporation. But as government becomes more "privatized" (individuals serving their own self interests as opposed to serving the interests of their constituency) the distinction becomes blurred. So to avoid confusion I will continue to use the more commonly accepted terms like "Washington" or the "United States" or "US" or "America" (and their equivalents) when describing the various Corporatist issuing authorities going forward.

The distinction above is more of a premise than a point. The point here is balance, and the lesson learned is that without monetary balance there can be no political balance.Witness the continuing changes in our world's socio-economic / political landscape. Needless to say, these are anything but balanced.

Sovereign nations, acting in their own self interests, have begun the process of rebuking the political will of the United States, including its dollar-funded military and ideological operations in their countries. The best way to do this is to refuse to accept dollars for oil. Most of Washington's Middle East initiative and much of it's other foreign policy intervention has been a reaction to countries opposing the political will of dollar primacy. Just look at any nation refusing to sell its oil or natural gas (and a few other strategic items) in dollars. There you will find the list of past interventions. These interventions were designed primarily to preserve America's self interests and maintain it's prime currency advantage - most often under the guise of "spreading freedom and democracy" so as to preserve the public opinion illusion which mainstream propaganda sources were able to maintain.

But with "alternative" (a.k.a. "real") news sources, this strategy has faltered. Calling reality "fake news", while typically bold and arrogant, was not effective, domestically. Then abroad, we have nations greatly reducing their usage and storing of dollars - in large part, again, as a repudiation of U.S. political will being imposed on their economies, and (more importantly) upon their political class.

So ... the issuing authorities of the current system's flagship currency needed to respond. When one looks at recent events in this context, it becomes clearer as to how the "America First" policy was both contrived and then later perceived.

The world hired Trump to say, in effect that: "America no longer wishes to rule the world. We are back to minding our own business and cleaning up our own house. No more expansionism, we are focused on Making America Great Again!" But do not make the mistake of taking this implied policy statement at face value. At best, it is an effort to redirect, diffuse and reduce tensions already in place, which will in essence prolong the demise of "dollar usage value".

The system's appointment with the massive iceberg that lies dead ahead is an unstoppable and foregone conclusion. Trump's election represents a reaction to that appointment, in the way of "hard over" with engines in full reverse.
In today’s world, the claims that wait to be settled are so huge that the (role) that gold is currently playing while being under the influence of .. strong dollar policy prevents it from functioning to settle these claims. In other words, at strong dollar prices, there is not enough gold in the world to settle claims – claims continue to build.

At some point, the claims will overwhelm the economy. At some point, the world will realize that their claim doesn’t really mean anything. At that point, they will do whatever they can to redeem their claim .. In the absence of the strong dollar, gold can find its rightful "role" as functioning to settle the surplus claims in the system.
- Ender
At one time it was thought that the Euro could fulfill the role of a "politically neutral currency". But the Euro members are not enough to preserve neutrality. While their politics are indeed a "sideshow", the perception around the world is unbalanced. Still, it was a step in the right direction.

The SDR has a chance to present itself to the world as an international settlement currency that is politically and even monetarily neutral (i.e. relative exchange rate impacts are fairly factored into it's value). But in a world of irrational and imbalanced claims in the system and a gradually failing FX market, the SDR remains nothing more than a supranational claim in the system.

Real things owned, like land and fine art, represent title to "payment in full" in a civilized world. But you will not find much in the way of title to such things on the "balance" sheets of the world's central banks. Still you will find shares of operating companies and claims of many sorts on our modern CB balance sheets, there has been a great deal of growth in such claims upon the future.

There is only one asset they hold which represents "payment in full" in a universally accepted way. No other CB holding represents the capability or liquidity to settle or balance claims in the system. As the currencies begin their transition that asset must also change, as there is not enough of it at it's current "average world currency price" to settle dollar claims.

Even if every single ounce of it was sucked up out of private hands and transferred to CB balance sheets, the world's supply is far too little. It doesn't matter whether gold or claims upon the system are "repriced" - the action and outcome are one and the same - to achieve balance.


  1. So... either Gold is re priced or currency claims in the system are re priced, but in either case, the PROPORTIONATE value of gold in the system must dramatically change? To better understand what you are saying, let me give an example, using 100 as a multiplier to make the math simple. Let's say the currency claims in the system stays the same, but to settle accounts, gold is re priced relative to everything else x100 to $120,000. OR the other option would be to reduce claims on the system, meaning all debt is reduced 100 fold, as well as prices of things like "a bag of peas", so my 100,000 mortgage is reduced to 1,000. The bag of peas costs 1 penny instead of one dollar, and my salary is reduced from 40,000 per year to 400. But Gold remains unchanged at $1,200. Is that correct? In either case the proportionate value of gold in the currency system is the same, the difference is using either big numbers or small numbers to express the gold/currency system ratio? I think the later scenario would be kind of cool, the US treasury would need to start minting 1/2 cents again! And, people would actually stop to pick up a penny on the ground! "A penny saved is a penny earned" would actually mean something again.

    But maybe that is not what you are saying... just trying to understand.

  2. If the Federal Reserve decided to protect the banks by adjusting the debts, it's too complicated to lower the prices of all commodities and loans. If the prices were adjust higher, the banks would end up owning not just a lot of vacant homes but a lot of bankrupted businesses and empty factories. Basically, anybody who doesn’t have a job with price commanding wages (big union jobs, Doctor & nurse) and any business which doesn’t produce price commanding services or products (foods and utilities) will lose everything they own to the banks. I don’t think more than 1% of the population can survive that adjustment and I don't think the banks want to foreclose probably 90% of existing homes and small businesses. On top of that, there will be millions of cars that the banks will likely have to repossess.
    It’s a lot easier to capitalize the banks with gold at $1,250 (or basket of hard assets) and then adjust the price of gold (or whatever hard asset in the basket which will not devastate the economy along with the much higher adjusted price – Hence, silver may not be taken that ride with gold at the onset) to whatever price is necessary to balance all the nonperforming loans in their books.
    Since all fiat currencies are joined at the hips, I suspect that is why the Chinese and Russians are accumulating gold in case of that adjustment.
    But maybe that adjustment will not happen in our times. Another thought it would happen in 1998.

    1. A good point well taken. Gold has no "economic function" (the price of jewelry isn't going to bankrupt nations) that will devastate whole economies if priced at 20X current dollar price. It's prime monetary function has always been to recapitalize balance sheets. It has done well for many centuries. This is why central banks hold real (or title to) tons of gold, not silver (or fine art).

      I believe it will happen between 2017 and 2020. But like Another, we could be wrong. For example, human beings could be extinct by 2018 if the wrong buttons are pushed by the wrong people.

    2. No, it will happen soon. The system is like a top beginning to wobble. Too many big ugglies out there ready to manifest from Japan to China to Europe to Student/Auto debt to Pedogate. The centripetal forces are proving too great as Globalism over-reached.

      Let's hope the following doesn't get snuffed out or sidetracked by a false flag.

    3. Grumps, I have many times thought the world couldn't possibly get more ridiculously out of control before a reset was imminent (as have many others). The article years ago about that island mansion where some jet setter was hosting parties which Bill Clinton (among notable others) attended where underage girls were brought in for God knows what, so the fascination with what is (sexually) forbidden is not news to me where people who achieve "power and influence" is concerned.

      In a world where absolute truth is inescapable, we would find many people with desires to sample forbidden fruits. What differentiates the little people from the "rich and famous" is that the latter has grown accustomed to serving those desires unencumbered and without fear of admonishment.

      But as for the timing of Freegold we may well have bisexual aliens fornicating in public before it happens and to predict either now seems perilous.

      Nonetheless I hope you are correct. As we are certainly "due for a correction".

  3. I think for the "little people" our 100K mortgages will remain 100K, but we might just pay them off with 2 ounces of gold if gold is repriced to backstop a quadrillion dollar derivative fiasco. The little people never have their terms renegotiated (much) but as you already know, the banks (giants) were given a 13 trillion dollar bailout (and counting) to "renegotiate" their losses.

    So gold must appreciate greatly to handle international payment imbalances which are HUGE. The inflation we little people will experience will be troublesome, especially for imported products, but our dollars at home will still be able to buy domestic goods and services within the former economic realm.

    The point being ... a $550 flat screen shipped from China today might cost you $9500 "after". But your locally baked loaf of $2.00 bread may only cost $3.50.

    See how this engenders "America First!" It's not an initiative as much as it is a reaction to the inevitable collapse of the current global dollar system.

    Of course I do not have a crystal ball, and there a zillion other possible futures - this just seems the most likely one where we actually survive vs. blowing the planet up.


  4. I think what Another missed 20 years ago was the EuroDollar. This is what really extended the game and will make the eventual adjustment that much worse. Snider over at Alhambra writes extensively about this. In fact, I think the FG crowd should be all over what Jeffrey has been writing about.

  5. You people do realize you are discussing the dynamics of a failed system, right?
    As such, discussion is moot. We are in overshoot, billions of people will die, and the global financial system will end. But my gold coins will save me! Or so says the idiot savant FOFOA.
    It is actually the end of the world this time. Perhaps not the end of human life or evolution, but the world we have known for centuries is coming to an end.

    1. I think you've contradicted yourself a bit. It is exactly because system is flawed/failed that some are heading for the exits before it *building/system* collapses burying them in rubbles.

  6. As one of the idiot servants of FOFOA, I honestly don't know whether my gold coins will save me. However, I do know the Chinese and Russians are collectively placing their hopes on gold in case of the end of the financial world as we know.
    If you were an American, the odd of your survival with gold has greatly improved with the Trump administration. Unlike most typical democrats like Obama and Hilary who don't respect property rights, Trump will unlikely pursuit those who claimed their coats early in the Coat Check.
    The end of the journey on the luxury cruise liner is almost over indeed and we are nowhere near the shore line. The Chinese and the Russians are sitting in their golden life rafts already. Anyone who refuses to grab a golden life vest when it's still available has nobody to blame but himself/herself.