Saturday, March 2, 2019

SPECIAL FX

It has been said that the making of money "out of thin air" is frowned upon by the ruling class. One might wonder how this differs from the usual making of money from bonds, especially  when one looks at the eventual likelihood of USTs being traded as a subprime issuance.

The use of dark money enters into these thoughts - massive sums of USDs that support geopolitical strategy. This dark money never reaches the world's middle classes in any significant way. However, it does impact the thoughts of nations regarding trade, when the currency being used is the world's de facto trade settlement unit..

We know that NO ONE Nation-state is foolish enough to outright detonate the dollar. Just the same, EVERYONE is on board with the idea of a concerted, gradual (yet substantial) reduction in global USD trade settlement. In energy, agriculture, even semiconductors. So the battle behind the curtain today is one of dark money flow vs. working economy geopolitical support. This is a late stage can kicking exercise as the inevitable approaches. Negative interest rates, bond yield targeting and outright stock purchases (by CBs) will be too little, too late.

Dark money gradually loses power when those who benefit weigh all disadvantages - including those of a politicized and weaponized trade settlement unit. That loss of power weighs heavily on the dollar system's issuing central bank.


So the essential question in this debate of the coming crisis remains - will it actually come (or not) in the epic hyper-inflationary currency destruction event described by Another and his followers. Remember the great oxymoron of the digital currencies, "when one major currency fails, they all fail" and "no paper currency will survive the coming fire".

But this line of reasoning follows from the current FX paradigm, in which "all currencies get their value from the dollar".

Again I will tell you, this connection to the dollar is changing, and the entire FX paradigm with it. As the dollar system is gradually abandoned, those major currencies become less affected by it - thereby "less connected " to it - and more connected to balance sheet gold reserves. Sovereign gold reserves will become a MAJOR determinant of relative currency value, especially as the currencies relate to oil, LNG, major commodities and critical technology including military industry. The IMF and World Bank? Soon to become relics of their former systemic role.

The problem is debt. And the dollar system's "U.S. debt as wealth" premise is being abandoned by nations settling trade in gold-backed currencies. The stronger currencies will trade with each other "backed by gold reserves in a gold regulated trading place". Today, these currencies are backed by gold in a dollar regulated marketplace where gold is a commodity priced by the dollar futures market. As the dollar function is replaced by gold used as a global reserve reference point for trading currencies, we will have a gradual return to relatively free markets where the dollar is ultimately priced by gold, instead of the other way around.

We will still have debt. We will still have currencies and derivatives. But these will all be valued by an FX regime that weighs their relationship to freely traded, free market priced physical gold. Ask any central banker about the only unencumbered asset on their balance sheet, which is now declared a "tier one" asset by the BIS.

The matter at hand today is less "when" than "how gently we arrive". Iraq's gold, Libya's and now Syria's is all part of this transition. The dollar system is still buying time.

19 comments:

  1. We currently have the GLD drain, which I assume is still going west to east.
    However, if the ISIS 50 tonnes, the Iraqi and Libyan gold fell into US military hands, where is this now?
    Pumped into the LBMA to keep it afloat?
    or is it being held for the transition?

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  2. My guess is that all US military seized gold is being held by The US Treasury in defense of the currency (somewhere on US soil). The US Treasury is the military arm of the dollar system. Mnuchin overseas the weaponization of the dollar through the application of various sanctions against military targets. The system has been weaponized, so we must recognize both defensive and aggressive maneuvers. Tariffs are another weapon, managed elsewhere. We are in an economic world war. Giants battling, small dogs hiding with what's in their bellies.

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  3. Corroboration of your post.

    https://new.qq.com/omn/20190302/20190302A06R24.html

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  4. Great article. Fear and Greed exist outside of rational thought. It's guesswork for those who believe all actions are quantifiable. Even within a crime syndicate or Central Bank for that matter, someone's bound to get spooked with just a modicum of "writing on the wall". All that's left is to follow the price action of Gold. I suspect it will become a leading indicator in this "everything bubble" from which it was excluded.

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    1. As you seem to infer in your 3rd sentence, the central banking system is indeed little more than an organized crime syndicate in structure and purpose.

      But it is so much more. It has an uncontested monopoly on the issuance of the world's accounting unit for trade, finance and derivative financialization (money from nothing).

      There has never been anything like it, all past iterations pale qualitatively. The legal casino of our lives.

      How could such a thing be tolerated by the rest of the world? Change is upon us.

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    2. This cat is back after 8 months. Makes great videos. Mentions part of the criminal superclass based in The City.

      The Real Elephant In The Brexit Living Room
      https://www.youtube.com/watch?v=Fhy17pZGDLI

      The Spider's Web: Britain's Second Empire (Documentary)
      https://www.youtube.com/watch?v=np_ylvc8Zj8&t=6s

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    3. Fiat Empires never truly die until fiat dies.

      Delete
  5. Yes true, and as in all crime families, there's always a Fredo Corleone who wants a better seat at the table. I guess the question is; Will it be by vote or coup? Votes being conducted via tonnage of gold and coup by??? Well if there is a military stalemate, then once again tonnage of gold

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    1. Something besides unrepayable debt must back a fiat currency for it to retain value. Usage backs it, until it doesn't. Trade backs it, until it doesn't. Sheer force backs it, until it doesn't. But gold? Ask any CB or the BIS ... how could gold ever stop backing a fiat currency?

      It even backs the dollar at dollar system prices - the final conundrum (and deal of the century). When the dollar system fails to price gold it will lose gold's backing like the parting of the Red Sea.

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  6. Yep, so riddle me this...Why isn't that "folksy" Warren Buffet guy knee deep in it for his shareholders..He seems to have some cash laying around?

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  7. I love Roacheforque's blog, but I love precision even more and I am hoping to get a precise answer to this: what nation has a gold-backed currency? Roacheforque's blog post mentions "gold-backed currencies" and there has been quite a buzz these past 5 years or so about Russia and China beefing up their gold reserves (and many have erroneously extrapolated that nations with gold reserves thus have "gold-backed currencies"), but where do Russia or China (or any of the gold-acquiring nations challenging dollar dominance) assert that their currencies are actually "backed" by gold? "Backing" means a holder of paper currency may present the paper currency to the issuing nation and receive physical gold in exchange for the paper currency. Even if backing is fractional, the holder of the paper will still get some gold in exchange for the paper currency. These nations (such as Russia and China) may hold gold and lots of it, but is that gold collateral for their respective fiat currencies? Is that Russian and Chinese gold backing for their respective fiat currencies? Can one redeem a Ruble or Renmimbi for gold from the coffers of Russia or China? Can even Russia or China themselves redeem the other's paper currency for gold (i.e., can Russia present Renmimbi to China and ask for gold or vice versa? Perhaps they can, pursuant to a secret bi-lateral agreement that we are unaware of, but publicly there is no evidence that such a redemption can occur). Anyway, there seems to be much confusion about gold-backed currencies. Just because a nation has gold does NOT mean its currency is backed by the gold. The gold sits there as a separate asset, not backing for the paper currency. Consider the US dollar. The US has gold, but does it back the US Dollar? No. Even the Swiss franc is not backed by gold nor is Lebanese and Mongolian paper currency, despite those nations’ noteworthy gold reserves relative to their outstanding paper currency. So since “backing” equals ability to deem for gold, which nation actually backs its paper currency with gold? Maybe you take exception to my definition of “backing”. Maybe you don’t agree that “backing” equals the ability to redeem. But if “backing” does not equal the ability to redeem paper for gold, what good are the gold reserves? What do they do for the holder of the paper notes?

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    1. Look at the US FED balance sheet and see the trillions in debt your dollars are "backed by". See the other currencies you mention ... were that not always backed by paper bonds? Mostly UST's? See gold being traded as a currency? It is always redeemable (with or without much effort) according to a price which the present FX regime dictates in terms of paper debt. I think your literal interpretation of backing loses its meaning here, just as the term "gold standard" does. We are always on a gold standard, though many still think in terms of a dollar standard. It's not really a point of contention. Time will tell.

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    2. It's not a gold standard the BRICS are moving to. It will be a system in which gold will settle BoP as a neutral reserve asset that floats in the various currencies.

      The problem with a gold standard is that it's a peg and all pegs break. The value of gold is NOT absolute. By letting the PoG float, gold as a neutral reserve asset can correct trade imbalances.

      This is what the BRI is all about. Trade along the silk route will center around gold as a reserve asset.

      http://www.sohu.com/a/300399115_522914

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    3. Also 100% correct Gramps. Again, exact literal interpretations aside (in the name of semantics) a "gold standard" IMO is exactly what that represents. But we have never truly left it, only obfuscated it. Giants, SWFs, CBs and the BIS all operate under the implied gold standard which drives the flow of gold into the position of currency recapitalization.

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    4. " It will be a system in which gold will settle BoP as a neutral reserve asset that floats in the various currencies."

      I think that system will be ready to go operational when all core nations have accumulated sufficient amount of gold in accordance to their GDPs.
      China didn't have sufficient gold reserve in 2008 and wasn't ready for the system which you suggested. Hence, the West has been supplying gold to China in preparation for the reset.

      Delete
  8. Can you explain how gold is backing these currencies today?

    "Today, these currencies are backed by gold in a dollar regulated marketplace where gold is a commodity priced by the dollar futures market."

    The final part, I am guessing the pricing of gold done by the Fed/Treausury based on future exchange rate price.

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  9. nvm i just read the above.

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