IMF boss Christine Lagarde is gung-ho about it. IMF staff is too. The Executive Board will consider it on November 30 and in all likelihood approve it. It will take effect in October 2016. Then it’s a done deal: the Chinese yuan will be added to the IMF’s currency basket, the Special Drawing Rights (SDR). A step toward becoming a major global reserve currency.
IMF staff had determined that the yuan meets the requirements of being a “freely usable” currency, Lagarde said in a statement, so a currency that is “‘widely used’ for international transactions and ‘widely traded’ in the principal foreign exchange markets.”
China also overcame other hurdles the IMF had put before it, after numerous reforms to liberalize its currency and credit markets and offer more transparency. The IMF’s Executive Board has the final say, but Lagarde will chair the meeting. And the rubber stamps are lined up on the conference room table.
Some countries, including France and Britain, have already expressed support for the change. According to Reuters, a Treasury spokesperson said the US government has always backed the yuan’s inclusion if it met the IMF’s criteria, and would “review the IMF’s paper in that light.”
The yuan has arrived – at the elite club for the biggest currency warriors: the dollar, the yen, the euro, and the pound.
China has long sought to give its currency more global weight, both as payments currency and ultimately as reserve currency, given the enormous size of its economy. By being included in the SDR, the yuan moves a big step closer, becoming more palatable for central banks to add to their foreign exchange reserves.
Currency analysts peg central-bank demand for the yuan at over $500 billion, according to Reuters. But global foreign exchange reserves have been shrinking since last year, as this chart by NBF Economics and Strategy shows:
So adding yuan to those shrinking currency reserves is a zero-sum game: as yuan balances rise, central banks will lighten up on some other currencies.
Not all central banks disclose how their foreign exchange reserves are allocated. But of the 60% of the officially “allocated” reserve currencies, the distribution in Q2 was like this:
The dollar reigns supreme, and calls for the “death of the dollar” have been premature. But it has surrendered some of its dominance as a reserve currency. In the 1990s, before the arrival of the euro, it accounted for 71% of allocated reserves. In Q2, it was at 64%.
It’s the euro that is getting hammered. Currently at 20.5%, it’s down from its peak in 2009 of 27.6%. In the dreams of its inventors, it was supposed to reach parity with the dollar and become the global counterweight to US financial hegemony. That was before the debt crisis exposed what it was made of.
So when central banks start making room for the yuan, the euro, with all its problems and uncertainties, and with its still significant heft, remains the fattest sitting duck.
But the inexorable rise of the Chinese yuan as an international payments currency just had a little setback, according to SWIFT, the Belgium-based organization that is owned by banks around the globe and is the data nexus of international money transfers.
In its report for August, SWIFT had been relentlessly effusive about the rise of the yuan. It had edged out the yen to become the fourth largest payments currency for international payments by value, with a share of 2.8% of global payments – not exactly a lot, given China’s economic power. But it was up from 0.8% three years earlier. So the report gushed about the yuan’s “huge potential and staggering momentum as a major currency.”
In its report for September, SWIFT said more demurely that the yuan “fell back one place” to fifth position for international payments by value, with a share of 2.5%. It sounded a wee bit defensive about its darling-yuan having had had a hiccup:
Whether the RMB sits at position #4 or #5, what is important to note is the underlying growth of the currency, which is trending positive. Such a trend is supported by an increasing number of corporates adopting the RMB for trade settlement and a rising number of banks supporting those payments.
The yuan was bested by the dollar (43.3%), the euro (28.6%), the UK pound (9.0%), and the yen (2.9%). But it beat the Canadian dollar (1.8%), the Swiss franc (1.6%), and the rest of the currencies.
Becoming a major global currency is one of the preconditions for becoming a reserve currency. That the IMF will likely anoint the yuan with an official seal of acceptance is a big step on an inevitable journey. So over time, the yuan will become one of the top three payments currencies and reserve currencies.
But it won’t significantly dent the “dollar hegemony” for a while. These things take time. The euro had tried and failed miserably. Crap happens. A debt crisis is not to be joked with. And when China’s mountain of debt implodes one way or another, the dollar might suddenly look pretty good again, assuming that the mountain of dollar-denominated debt doesn’t implode first….
China accounts for 40% of global copper demand. Without access to copper, China’s economy would grind to a halt. And you’d think with China’s official white-hot growth of 6.9%, there would be a lot of demand for copper. But no. Something is mucking up the equation. Read… What Copper Just Said about China
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Today’s attack in Paris marks the beginning of the end of the Euro. It’s not going to be Catalonia, Spain, Southern Europe, etc that’s going to end the Euro, but the upcoming putsch against “immigrants” that will set these countries on each other’s throats.
One attack in Germany, and the entire thing will blow for sure.
Far from being the “… beginning of the end for the Euro”, it is, rather, the “… end of the beginning”. The Euro is quietly being transformed into The New Deutschemark; this has been Germany’s plan all along. They’ve always wanted economic control of Europe, now they’ll have it and without firing a shot, unlike their two badly-ending attempts in the 20th Century.
So . . . Dim Sum bonds (DSUM)?
My bet is the SDR will become the new “Global Currency”following the next crash / war. In a Bretton Woods type scenario, the IMF will be the only financial institution with a balance sheet in good enough standing capable of holding that title.
The international financiers such as the Rothschild’s, J.P Morgan Sr and Jr and the Rockefellers all found great success built upon certain traits. Those include a cold objectivity, immunity to patriotism, and indifference to human condition. It is this basis that motivates such men to propel governments into war for the profits they yield. I feel we are moving closer and closer to a major conflict that will usher in a new monetary system. One without borders, without multiple currency’s. What better way to gain more control and more power…. Just a thought!
I just hit the Wiki for SDRs and I am not sure they work that way; at least not in their current form. They appear more like another “option” for foreign exchange reserves, which has liquidity benefits, but not sure how it could replace one or more currencies as by definition an SDR is a claim on another CBs currency.
As I read it, it might work something like this. There is a series of major market moves and some central banks are very short on dollars and they need to clear settlements/trade/etc. They could use the SDRs to access the dollar reserves OF ANOTHER central bank to git’r done. The penalty is that weekly interest is paid by CBs that are short their allotment and paid too CBs that are over their allotment.
It kind of reads like an intra-bank lending mechanism, just at the CB level.
I don’t see anything about how SDRs might act as a currency should the existing set of currencies adopt too many zeros. I think us peons will still be stuck with crappy fiat, although the SDRs could be used at the national/CB level to work things out amongst themselves.
Anyone else who can walk us through how that might work, if I got it wrong, I am all ears (eyes).
Ok Cooter,this is everything I know about the IMF’s SDR. This information was taken from one of Jim Rickard’s newsletters I subscribe to.
Eight Must-Know Questions About
What is a SDR? The answer is surprisingly simple. It’s world money, printed by the IMF and handed out to member countries. It’s just another form of fiat currency like the dollar or the euro, not backed by anything. The only thing that’s slightly different is that the SDR can only be used by countries, not individuals.
Countries can “swap” SDRs for dollars or euros (using a secret trading facility inside the IMF). Ultimately, SDRs can be spent in private transactions once the swap is made. This is why printing SDRs has the same inflationary potential as printing dollars or euros.
Are SDRs backed by anything? The answer is no. Lots of commentators believe SDRs are “backed” by a basket of currencies
(dollar, euro, sterling and yen). But the basket exists solely for the purpose of calculating the value of a SDR.
As of Sept. 4, 2015, the value of 1 SDR was $1.40; however,
that value has fluctuated between $1.35 and $1.60 in recent
years. The SDR is like other floating-rate currencies in that
regard. The basket is used to calculate its floating exchange
rate against freely convertible currencies but otherwise has no
purpose. There is no segregated account of hard currencies
“backing” the SDR.
Are SDRs new? Not at all. They were invented in 1969 and have been issued in large amounts between then and now. The IMF printed SDR9.3 billion between 1970-72. The next issuance was SDR12.1 billion between 1979-1981. After 1981, there was no issuance for almost 30 years. Then in 2009, the IMF issued SDR182.7 billion in two tranches. The total issuance to date amounts to SDR204.1 billion, equal to about $285 billion at current exchange rates.
Why are SDRs issued? SDRs are not issued for bailouts or solvency purposes. They are primarily a liquidity tool. SDRs are issued at times of global financial panic when investors are dumping assets and scrambling for cash. This is demonstrated by the dates of actual issuance. The 1970-71 issue coincided with a run on Fort Knox and Nixon’s closing of the gold window. The 1979-1981 issuance coincided with hyperinflation and loss of confidence in the dollar. (Remember “Carter bonds,” when the U.S. Treasury had
to borrow in Swiss francs, and Paul Volcker’s 20% interest rates?) The 2009 issuance was part of the G-20 global rescue package in the aftermath of the panic of 2008.
How often are SDRs issued? SDRs are not issued lightly or frequently. They are brought out by the power elite when it looks like the international monetary system is crashing around them.
The next time a financial panic starts, it will be bigger than the central banks because their balance sheets are already stretched from the last crisis. That’s when you’ll see the world flooded with SDRs.
Are SDRs just used as money? No. They can be used as a form of credit also. The IMF keeps its books in SDRs. When the IMF borrows money from a member countrylike China, it gives China a note denominated in SDRs. When the IMF lends money to a bankrupt country like Ukraine, the loan is also denominated in SDRs.
Of course, Ukraine can quickly convert the SDRs into dollars using the IMF swap desk, but that just means another IMF member ends up with the SDRs in its reserve position. The activities of the swap desk are kept secret, but an examination of central bank reserve positions relative to prior SDR issuance reveals where the SDRs are going.
Who is the biggest buyer of SDRs? China looks like the biggest buyer of SDRs, just as it is the biggest buyer of gold. For China, these are all just backdoor ways of dumping dollars without disrupting the U.S. Treasury market directly.
Can I invest in SDRs? Right now, the answer is no. But we’re in the process of developing a novel way for you to “own” them. It’s a completely new approach I’ve never seen offered to investors anytime before. Stay tuned…
2016 is going to be a very interesting year to say the least!
Thanks, Jeff. That’s very helpful. I should link your explanation next time I mention SDR. Few people know what they really are.
China was the last to join the currency war and will soon pass the United States to become the world’s largest economy. that emergence will reshape America’s financial hegemony. Much of America’s obligations are owed to foreigners which represents a clear & present danger for the dollar. America’s trading partners’ patience is wearing thin with America’s hegemonic power and use of it’s financial clout as a political tool.
The US which is the world’s largest borrower has become increasingly dependent on it’s creditors. Some of these debt-holders have noticed and countries like China are dumping dollars as they discovered that Q.E. reduced returns on it’s massive dollar denominated reserves to near zero. Saudi Arabia too has unloaded dollars as it dipped into depleting reserves to prop up spending & hedge the impact of falling oil prices. Russia unloaded dollars to offset the impact of sanctions and gold purchases.
Brazil, Norway and Taiwan sold dollars having already tapped out of their rainy day reserves. In time, these sales will push up rates with or without the Fed’s acquiescence. Never mind that the dollars which have been created are worth less and less.
Debt DOES MATTER and it must be paid off. Failure to pay not only leaves future generations the responsibility, but failure or even the hint of default damages the credibility of all debt.
The failure of the Fed to wrestle these problems has eroded trust in America’s ability to act as a financial steward of the world’s reserve currency. Still to come is the unwinding of America’s extraordinary monetary policy & the eventual symbolic 1st interest rate increase in a decade. Every move is about the loss of respect.
So with regards to this very well presented commentary, I agree with all that you have said Mr Richter, except maybe I would be inclined to give more credence to the assumption that “the mountain of US denominated debt” will implode before China’s “mountain of debt” does. Thanks for the great article.
Tempest in a teapot my friends- let China free-float the yuan and we will see what the yuan really means in the world economy. Without the USD peg, the yuan would crash and other countries would start closing their borders to Chinese stuff.
The USD is still the prettiest pig in the currency pen. And it will remain so. No one (with a brain) trusts Chinese numbers and no one (but the Chinese) are going to trust in their currency unless they directly back it with gold. And just like Nixon not wanting to exchange USD’s for gold, China is not going to want to exchange gold to prop up the Yuan.
I agree. But, this is a short to medium term outlook.
As an American, I am really worried about the long term outlook.
Chaos is going to be the soup d’jour at some point, but after that I suspect gold will be back in the global trade settlement spotlight.
There will be a flood of water under the proverbial bridge between here and there.
Thanks to the commenters here; it is the best reading I can find these days.
In reply to CrazyCooter – You indeed have insight. “WHEN” the current fiat fails as 100% of “all” others have done over 3,000 yrs because it is debt-based, the only way of coming back to a monetary system where gravity will always eventually determine the true stability & force of the markets (under Austrian economic policy) will have to have a solid, tangible backing with correct controls in place as before under the previous Bretton Woods agreement where strict protocols kept everything in check – Even digi-currencies (“Not Bitcoin & the like” which will be out-lawed & made null-in-void) but ones which will be introduced soon by govt’s to enable complete control over all transactions will have no backing as they will just replace or be purchased with everyone’s hard-earned “fiat” which is just “debt” or ‘IOU’s”. May I just add that the Chinese are already trading freely with a growing number of countries, bypassing the US which soon will sure have an impact on the most indebted nation on the planet today. The almighty dollar’s days are numbered in more ways than one – Such a shame that it has been abused since being given the status of being the most treasured in modern times.
to answer the question in the title, we aren’t even likely to see the rmb demolish the pound to take third place in the rankings for the foreseeable future – it’s worth remembering that the US was the worlds largest economy for 50 years before the dollar became the worlds major international payments currency, and the Chinese economy is still a long way off reaching that point.
And you’d think with China’s official white-hot growth of 6.9%, there would be a lot of demand for copper.
No one believes China has a 6.9% growth rate. Furthermore, China’s population will start shrinking from 2025 (which is less than 10 years from now). Will China’s communist leadership be able to cope with the momentous internal changes happening? Come back in 20 years and we’ll see where things stand. ;)
and even more to the point, the labour force is already shrinking
We have 94 million to pick from!
I would think that some of our homeless would love to live in an empty Chinese city apartment.
As to our illegals, I am sure the states would love to pay there passage on a ship to,,,,,, upp China. Problem solved.
Central Bankers (and IMF types preaching from their tax-free thrones) are a clubby lot, but how does Central Banker A really know how much Central Banker B is madly printing away. One would assume they might, but the Eurozone shambles demonstrated that if there were a rule that no one run more than a 3% budget deficit, that one certainly went down the tubes. It is worth recalling that the much-despised (and here only by the Central Bankers) gold standard, a miracle of simplicity (that also the enemy) was to ensure honesty. Maybe Christine could explain how she has any idea how many yuan the Chinese, who came up with the filthy idea of fiat, are printing
With regard to Robert’s comments which began with “Central Bankers (and IMF types preaching from their tax-free thrones)” I have to say his contribution is the most knowledgeable yet and as for the words from KAM – Does he really trust Washington & the Fed’s more than the Chinese? Some mothers do have ’em.
I don’t think China follows a one track policy. To think that they only thing they want is to shine in the US anointed IMF is naive. With IMF reform stalled they have no choice by to create their parallel universe.
They also follow a track of bilateral agreements with payments in national currency.
To be a reserve currency under the Brettonwood system, you have to run an open economy, i.e. dollar claims can be converted into gold, or physical assets. Of course, it’s only assets, now.
I rather think, China does not qualify, or want this.
“To be a reserve currency under the Brettonwood system, you have to run an open economy, i.e. dollar claims can be converted into gold, or physical assets.” That is not exactly how it worked: king of the hill after WWII, the U.S. said, “WE’RE the reserve currency, and its 35 dollars to the ounce of gold. You can always exchange any dollars you hold for gold at that rate.
This clearly depended on the dollar’s being perceived as a store of value! But it became apparent, with massive budget deficits associated with “The Great Society” and simultaneously the Viet Nam quagmire that there was no way the dollar was any kind of fixed store of value, and when what Obama calls “our oldest ally” called the bluff, and actually demanded an ounce of gold for every 35 dollars they held, the entire charade was exposed. LBJ deserved the blame, but Nixon caught it when he “closed the gold window”, and in less than 50 years since the dollar is less than 1/1000 oz. worth of gold. That is what unrestrained deficit spending does.
Chinese currency can be exchanged for Chinese goods which are plentiful, and these goods qualify as physical assets, for those of you who mentioned the criteria. For those of you stuffing your mattress with cash, I would definitely include Chinese currency. The Yuan is not going to crash anytime soon, the value over time is up.
Exactly. Most of the stuff in the US are now made in China. So behind the Chinese Yuan, there will always be some physical stuff.
In the US though, it’s money backed by social networks.
No, the money in the US is backed by military might.
Here’s an argument against that: https://unitedcats.wordpress.com/2012/10/06/the-greatest-empire-in-history-and-the-usa-hasnt-won-a-war-since-1945/
The US military might is pure propaganda, which is the domain of social networks.
Actually there was a time when the US Dollar was backed by something more precious i.e. the willingness to try to do the right thing, but that’s all lost now.
A good friend of mine is a contractor who supports the electronic security for a military nuclear submarine base and he has been sitting at home for 6 weeks because of lack of funding needed to resume work – So much for American military might. I will agree with you regarding the yuan (Renminbi) however.
The US is a large nation with a huge base of natural resources. While I am no fan of us exporting all our jobs, we still have quite an array of manufacturing and other industrial activities still on shore.
Two quick examples are oil and ag. While we import quite a bit, we are also one of the top producers in the world (with the services/tooling companies to support it). Agriculture is another big one; we feed a lot of the world. I could go on, but I make my point.
Our problem is that our nation is run by idiots who essentially compete for political office to spend OPM (i.e. your money, dear taxpayer). A little graft isn’t going to kill the host, but it is so broad, so systemic, and so completely out of control – we are destined for a currency crisis. Healthcare (the whole system – billing, insurance, pharma, etc) is a complete clusterf**k and demonstrates this issue precisely. It is killing the host.
When that currency crisis hits (my current wager is on cascading defaults – most likely originating from the frack oil patch), our rednecks in TX will still know how to produce the most challenging oil formations in the world and the sun will still come up over Iowa which will still be producing tons of corn that hungry people (and livestock) the world over want to eat.
Cooter – was that a pun? You mean roughnecks in TX……and OK, CO, NM, ND, KS, OH, PA, MD, CA….. coast to coast we can produce oil and gas as well as food.
As for the this article, I trust no economic numbers from anyone, anywhere, anymore….especially the Chinese.
Didn’t mean to slight (or exclude) anyone, was just pointing out the US has a very large base of legitimate, wealth producing economic activity. Texas is the largest oil producing state, so I simply cited it as a recognizable example. Same for Iowa with respect to farming.
While the dollar still dominates global trade, the massive conversion by sovereigns from US treasuries to Yuan will overwhelm the Fed’s ability to sop them up. This will be the great reset: a forced devaluation of the $ and massive inflation here. The inclusion of the Yuan in the basket is the first step. It’s coming.
I’m going to go with Ann Stevenson-Yang. In a masterful presentation in FEB 2015 ( Enter her name and look for her pic on You Tube video) she outlines the incredible crash looming in China.
Anne S-Y has lived there for 25 years is fluent in Mandarin and founded her outfit that analyzes Chinese data.
She describes empty cities and whole industries in massive oversupply. The aluminum one- two trillion in size- and one plant running at a loss so the Communist Party (CCP) connected bank won’t have to write down the loan.
Same with concrete, steel etc.
A recent comment of hers: We are amazed how many analysts have bought into the idea of Chinese Exceptionalism
To me it’s amazing that people don’t understand that the CCP has morphed into a type of pre-Revolutionary French Aristocracy.
Yup, all communist dictatorships ultimately collapse on themselves….without democratic reform. Just look at Myanmar, they’re a paragon of democracy compared to China.
Define “Money”, different than that of “Currency”, where money (Gold) is the world “Anchor” (agreement) for “Money” … and all government’s will have their own currency (and tax laws on their own currency). Little change from today,
(except US$ is not money, it is only a currency).
For all the discussion about the timing of gold
markets there is needed, a NEW definition for gold …
as an ANCHOR for MONEY.
Money anchors all currencies, (via bid/ask ratios) ,
each country uses Currency, (basis of tax laws).
You work for currency, (not money) … you buy sell
with currency … (you do not go into McDonald’s
with a tiny speck of Gold or 1/10th oz of Silver.
While Gold is poor as an Anchor … it is the
best Anchor … it is bid/ask daily … it has
5000 years of history. It is periodic-table stable,
element, rare, does not rot, or rust, nor attract bugs.
You guys know all that stuff … but you really need
to redefine Money as an Anchor … that currency (‘s)
is not money (just a coupon for money … It should
be anchored by Government’s agreement and contract
Movement of Gold is minimal as it is the sanctity
of contract (ownership), the ACH clearing of
check balances, the SWIFT foreign payment system.
Gold would not be wholly owned by Governments …
nor by banks … rather they provide the legal
basis that gold is money … the world-anchor
for all currency, based on world-wide bid/ask.
Gold is the best Money, as Anchor for all Currency(s).
Gold is no good as a currency … but is excellent as the
basis of Money (anchor) by all governments acceptance .
Gold seldom moves … just the contract of ownership …
so gold is no heavier than then a BitCoin
I started buying gold in 2001 and over the years keep hearing about how the monetary system is about to implode, being held together with nothing more than chewing gum and used dental floss and maybe a few other things.
So when are they going to, as Larry Silverstein so eloquently put it,
The US and China are close to par in economic size so it would stand to reason the Yuan be recognized just as such. Do you realize the human family is going to grow from its current 7 billion to 9 billion in the next 35 years. That’s 23% in 35 years…wow! A lot more homes are going to be needed. Debt is not a bad thing when one can service your debt. Can the US service its debt…can China…can Europe…can Japan ? They can if their central banks decide to do so…but it may mean a lower standard of living…but its not the end of the world.
David Walker, former Comptroller of the US Treasury, recently alerted the American people that they are sitting on a Debt Time-Bomb. But he grossly under-estimated the real debt, which is closer to US$222 Trillion. Watch:
If the Chinese yuan is backed by gold or silver or both and becomes the premier world reserve currency, it is because according to GAAP, the US is already insolvent and the game is over for the Federal Reserve Note aka, the US dollar, which is backed by nothing but a promise to pay since August 15, 1971.
Finally, someone (Kent) explained what really matters. There is absolutely no comparison between our debt and China’s. For one WE OWE THEM, and two, while their currency is backed with gold ours is backed by $200 Trillion of debt……..
The yuan isn’t backed by gold anymore than the dollar. They’re both fiat currencies. The yuan is pegged to the dollar, though. And let’s not even talk about the debt that has accumulated in China….
I didn’t mean the Yuan was literally backed by gold. It’s there, if needed (and will be used) unlike ours. Also estimated to be well over 3X what we USED to have…… I never said China had no debt. They are still a creditor nation. US, hasn’t been for decades.
I agree with you that “Its (gold) there, if needed (and will be used) unlike ours.”
But is it “estimated to be well over 3X what we USED to have”?
The jury is still out *unless* the FED lied and the gold at Ft Knox is much less than 8,133 tonnes.
You see, as at the end of June 2015, China’s central bank announced that its gold reserves were 1,658 tonnes .
In April 2009, the gold reserves were 1,054 tonnes.
The talking head at CNBC said “The 604 tonnes increase did not exceed analyst estimates and the price of gold was unmoved on the news.” ( instructed to say so by the Elitists so as not to spook the price of gold and cause the US dollar to swoon as a fake ‘strong dollar policy” buys a lot of free lunches.)
Another analyst at the ICBC Standard Bank said “If you like gold the fact they bought it it’s a good thing but it’s not bullish in terms of the scale”
But the nuance they missed is this: The 604 tonnes were allegedly what they bought in the Shanghai Gold Exchange and the LME (gold market) in 6 years and that did not include what Hong Kong bought or how much they mined in the country or how much their citizens bought in the intervening period.
What they also ignored is that China is the biggest gold miner in the world, producing about 380 tons consistently a year and the gold produced is NOT for sale to foreign buyers.
So from 2009 to 2015 the amount of gold mined could be as high as 2280 tonnes. Add that to 1,658 and the total notional CB, state industrial banks and Sovereign Fund gold reserve from 2009 to 2015 could be 3938 tonnes.
Add another approx. 7,600 tonnes of locally mined gold for 20 years from 1989 to 2009 and the grand total from 1989 to 2015 could be, viola, as high as 11,538 tonnes , not counting the gold in Hong Kong and in the houses of the 1.4 billion citizens.
According to the FED, the US has gold reserves of 8,133 tonnes but that figure has not be audited since circa 1976.
So if the total gold reserves at Ft Knox is now say, 2,500 you are right. Its 4.6 X. What if there ain’t any gold at Ft Knox?
The answer is infinity because any number divided by zero is infinity.
You are right the United States was a ‘creditor’ nation after WW2 but now the total US funded debt is about US$18.5 trillion and the unfunded debt is another US$222 trillion, thanks to the Federal Reserve Bank Act of 1913 and to Pres Woodrow Wilson.
Now we know why there is ZIRP. Will Yellen raise interest rates in Dec? With that humongous amounts of debt is she kidding? It is like committing a self-inflicted, Japanese fatal wound called hari kiri.
Kent – Regarding your last two posts – You are absolutely correct in all aspects of what you have said. As you say, no gold is permitted to leave China. The summations of their gold acquirements, in my belief far exceeds their claims of the actual amounts released.
Regarding the Fed – They are snookered with all other options expended except for more of their expansionary monetary policies. They know that once they move on rates to the upside it would be the beginning of the end.
It is comforting to know that there is a growing number of our ilk becoming aware of the actual situation in which we all now find ourselves.
Kent – I agree with your sentiments & thanks for the link regarding the Elitist controllers. You are obviously in tune with the history of the Rothschilds (who have been behind every major war for 2-3 hundred years) & all their cohorts including various families, cartels & cabals.
Putin (the master-player) along with the Chinese have been aware for a long time also. No matter what most may think of them, they are no worse than our tyrannical leaders who are extremely good actors. Vladimir Putin is a straight-shooter who, along with China’s Xi JinPing are a force to be reckoned with.
Great article and oh so correct. Yes, the derivatives market is a ticking time-bomb and the dollar’s days are surely numbered. Most of the ignorant majority will wonder what the hell happened once again.
Wolf, you are right. All currencies today are not backed by any gold or silver.
And sure China has debts too but to put that into perspective since China has 4.3 times the population of the US, it must have the equivalence of $955 trillion of unfunded debts (222 x 4.3) to equal the US’s $222 trillion on a per capita basis. China certainly does not have that kind of scandalous debts.
For the yuan to replace the US dollar as the premier world reserve currency it has to be backed by gold or silver.
Impossible? Not true, because it was the practice in the past, at least for silver until circa 1933.
English money had always been associated with silver, giving us the term ‘sterling silver. This was also common with much of China, Europe and India but money in the Middle East was based on gold. (Lots of pristine Arab gold coins were found in the sea near the Port of Caesaria in Israel).
The ‘Tael’ was a Chinese unit of weight that, when applied to silver, was long used as a unit of currency. Most taels were equivalent to 1.3 ounces of silver.
China did not have a national currency until 1933, and hence external trade was conducted in foreign currencies and internal trade in ounces, or taels, of silver. The tael was seldom minted in the form of a coin but rather served as a standard unit of account; actual transactions were completed with ingots of silver, with bank notes or checks expressed in taels, or with silver coins, especially the Spanish or Mexican silver coin. (Brit Encyclopedia).
Some historians speculate that because of the English folks’ love for Chinese Tea, which must be made with boiling water and therefore eliminated diarrhea, which was endemic in London due to the drinking polluted from the river Thames, by 1710, Britain was running short of silver as Chinese merchants would only accept silver as payments for Tea.
This led the cunning Rothschild-led East India Company to traffic opium into China to sell for silver to buy tea and then waged two Opium Wars when China wanted to stop the drug-trafficking.
When Sir Isaac Newton, the famous mathematician and physicist (2nd law of motion) , became Master of the Mint, on the first day at work he asked his staff what was the unit of the pound sterling and no one had any clue. He said “’Gentlemen, in applied mathematics, you must describe your unit.”
He asked “Is a piece of paper of certain dimensions (length, breadth, and thickness, or else weight) a pound? Certainly not. Is a given sized piece of paper a dollar even if numerals and words of a certain size are stamped on it with a given quantity of ink? No.”
He became the father of the gold standard and worked out what the pound was worth in grams of gold. The shilling, pound, and pence were redefined so that twenty-one shillings and six pence would stay equivalent to one GOLD guinea.
But Britannia waged too many endless colonial wars and she went broke and went off the gold standard in the early 20th century.
So why is the US dollar qualified today to be the premier world reserve currency after Nixon closed the gold window on Aug 15, 1971 and it is no longer backed by gold at $35 per oz and the US is now waging endless war on terror?
Can it possibly be because of the confidence in the US economy when it has $222 trillion of unfunded debts? Hardly.
So is the US dollar back by the business end of a gun? IMHO, yes but as sure as the sun will rise tomorrow, it will be replaced as the world reserve currency like the Portuguese escudo, Spanish peso, Dutch guilder, French franc and British pound before it , when the US implodes with over 222 trillions of dollars of debts.
Kent – You indeed know your history and have a grasp of the situation. There is not enough gold “above ground which has ever been mined” to ever “NOW” be able to “totally” be a possible backing (anchor) for any major or economic reserve currency.
I must say that since 1944 when the US was voted to hold the status of the “main” Global reserve among the basket – (because America apparently had the strongest economy & the mightiest military at that time), successive US governments (controlled by the Elitists), have because of “various” reasons done everything within their powers to abuse this privilege & dictate forceful means (including sanctions etc) upon a multitude of countries along with it’s Nato puppets in collaboration with the “World Bank Group”, “World Bank”, IMF, BIS etc, etc to enhance the power of the US over the rest of the world – Well, the forward thinking Chinese & Russians have put a spanner in the works of the Elitist’s plans. (They have been tired of playing second-fiddle & being dominated by the corrupt western powers for a “long time” & have been working toward a sustainable & more secure economic future “WHEN” this present fiat system ultimately fails). Yes, they have huge debt as well – what else is to be expected under a debt-based system, but the Chinese have invested in HUGE infrastructure in other countries. But ask yourself – Why have they all been gorging themselves on all available gold bullion at the “give-away” prices from the US & UK facilities for the last 3 years “along” with Goldman “Sucks” & J. P. Morgan -( who are both essentially the Fed)? They obviously know something that most of us do not seem to be aware of.
I would bet my second-last dollar that the “apparent” 8,000 tons of gold stored in US vaults has long been sold & leased out, along with the “supposed” quantities in British vaults (which they are still charging storage fees on) and there is MUCH more held in Chinese facilities than what is believed (They are secretive also) as you will be well aware.
The Chinese & Russians, along with India and the BRICS plus the “ever-growing number” of Eastern, Asian, Pacific & western countries “already” trading freely with China, by-passing the Dollar, through sheer populations & huge trade will bring an end to the “great US dollar” which is nothing but fairy-dust today and the previously unimaginable size of the derivatives market which has reached a ridiculous stage will definitely put the seal of ruination upon the dollar when the dominoes start falling this time around. A system based on lies & deceit can only last so long, no matter how much intervention & the despicable “controllers” of our planet are in for a rude awakening – So are we unfortunately!
“There is not enough gold “above ground which has ever been mined” to ever “NOW” be able to “totally” be a possible backing (anchor) for any major or economic reserve currency.”
Yes and no. It depends on what is the future reserve currency backed by and by how many grams of Gold or Silver.
Remember what Sir Isaac Newton pontificated in the 18th century? “Gentlemen, in applied mathematics, you must describe your unit.”
At Bretton Woods gold was US$35 an oz. That was way too cheap and the peg imploded by Aug 15, 1971, after the US printed more paper money, than it had gold backing at Ft Knox, to fund the immoral Vietnam War.
If the Yuan is backed by gold at say 100,000 yuan per oz of gold or US$15,873 an oz at no change in the exchange rate of 6.3 to 1, it is possible but it means both currencies depreciate against Gold by about 1,334%. Impossible?
Please note : In 1970 gold was US$35 an oz. Today, it is US$1077 an oz. That means the dollar has depreciated by 3,063% against gold. So there is a precedent and it can happen again if the circumstances dictate it.
What?? Impossible someone will surely say. But Jim Sinclair, arguably the Godfather of Gold, predicted that the Gold price will rise to US$50,000 an oz in the future. Watch :
Some readers will say, “Ah, he is mad”. No, he is not. In Nov 1923 the price of gold in the Weimar Republic (Germany, soared to 87 Trillion marks, from just 170 marks in 1919.
Will there be hyperinflation in the USA? Yes, it’s very possible if the funded and unfunded debts rose to over US$300 trillion as there is no way the US can even think of paying that amount of debt ( except with funny money) when its tax receipts today are only about US$3.4 trillion a year.
Be warned. The funded and unfunded debts are now US$240 trillion. Got Gold?
Thank you Kent. The proclamation of Sir Issac Newton has brought back memories of his statement – Of course the applied “UNIT” must be adhered to once a “standard” has been set and I was “incorrect” in my statement regarding the “total supply of gold in known or available quantities” which is really irrelevant. As you say, when a given conversion rate to gold/silver is applied (e.g – a certain value per ounce is accepted & applied universally) then, we would have an honest & hopefully non-corruptible monetary system where “Fairy-money” cannot be pumped into the economy as a false stimulant, but this time around there will have to be strict controls & measures implemented to guarantee sustainability of a system with a tangible, “real” anchor. Forgive me, I have over-indulged in medicinal compound for many years & my grey matter needs a shake-up sometimes. I see your reasoning for much that I sometimes forget.
Jim Sinclair is a man of much foresight & knowledge whom many more people should take notice of for their own sakes & thanks for the video which may I politely & reluctantly point out that I have seen before. I also have an immense respect for Jim Rickards even though one or two of who I consider to be very learned individuals whom I follow don’t trust him because he “still” has “friends” within the CIA, even though he speaks out against this corrupt institution.
I have subscribed for a long time to many daily contributions from distinguished people in the world of finances who “own” and/or control corporations worth many tens of billions, as well as a few who have been involved in the markets & Wall Street for up to 50 years and are the most highly respected in the business world.
I totally accept and agree with what you have said regarding the allocation of a “Set Amount” of gold per unit of currency as in the past and the Chinese are working towards this for “when” our present fiat system collapses.
I note that the Fed has called an “emergency”, advanced “closed doors” meeting of their board of governors this Monday 23rd @ 11.30am which will be held under expedited procedures with the main topic: “Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks”. I rather think that something may have just snapped?
Your correlations regarding the price (not value) of gold and the P. metals which were “altered” in the past and currently have been “manipulated” by set computerized algorisms to extremes, “contrary to demand” of such are indeed true and this will be exposed & corrected when this present monetary system implodes “when” the dominoes once again begin falling and the big correction is brought about. It will come down to “who has what” to act as a tangible, realistic monetary system once again as our present system is doomed to fail as “ALL” other fiat’s before which are debt-based and unsustainable long-term as you know.
Thanks. I think we are in concert on most of the topics we discussed.
I also agree with you that “It will come down to “who has what” to act as a tangible, realistic monetary system once again as our present system is doomed to fail as “ALL” other fiat’s before which are debt-based and unsustainable long-term as you know.”
James Turk has 45 years of experience in international banking & finance. He is now concentrating on gold investments.
According to him there are 170,000 metric tonnes of above ground gold,
Now one ton of gold is about 32,150 oz and one oz is $1077 today.
That means one metric ton of gold = $34,625,550.
China has a foreign reserves of about $3.75 Trillion. Do the math and see how much gold she can purchase with that amount of reserves, assuming the price remains at $1077 an oz. (which is unlikely and will go ballistic once China starts discarding the dollars/euros and start buying gold).
My calculation is 108,301 metric tonnes at $1077 an oz. Add in the estimated in-country gold and the grand total is a whopping 119,839 metric tonnes vs 170,000 metric tonnes in the world !!
At an agreed 100,000 yuan an oz of gold ($15,873) China will have enough gold to sustain a gold standard for a long time and the fake $5 trillion daily forex trading will vanish overnight.
James Turk says “Keep in mind that it’s only since 1971 that we’ve gotten off a gold standard. This has NEVER happened before in history. Gold has always been the key underlying element. So we’re in uncharted territory. What would you rather bet on? Something with a 5000-year history that still preserves purchasing power? Or fiat currency based on politicians and their promises that have a 40-year history?” (emphasis mine).
I know where I shall place my bet on, don’t you?
You wrote : “I note that the Fed has called an “emergency”, advanced “closed doors” meeting of their board of governors this Monday 23rd @ 11.30am which will be held under expedited procedures with the main topic: “Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks”. I rather think that something may have just snapped?”
Ron Paul likes to get rid of the FED, which charges the US Govt an interest (usury) for using the ‘Federal Reserve Notes’ (seen on the top of every dollar biil) which are printed out of thin air, which the US Mint can do as well or better, without charging any interest.
But the best option, IMHO, is to nationalize it. You said “I rather think something may have just snapped?”. How prescient of you.
Google Benjamin Fulford, a Canadian and an ex Forbes editor in Japan and he will shed more light on this topic. Also follow Dr Preston James and Mike Harris as they are on the right trails.
Kent – With regards to your last two posts – You are indeed “in tune” with reality & there is a growing number of us. Yes, James Turk is very knowledgeable & I regularly read his commentaries via “Silver Doctors”, “King World News” etc. May I say that I have very rarely heard the word “prescient” since my school days, many moons ago when “one” was taught correct English & Arithmetic -(“A red Indian thought he might eat toffee in class”), before the days of calculators when only a slide-rule was allowed in exams. How many kids today would know “off the cuff” what the square root of 169, 196, 225 etc, etc is? We were instilled with practices of memory which is never forgotten (justlike riding a bike).
Anyway, getting back to the main topic – Benjamin Fulford is correct regarding the Paris “False-Flag” event. I also have a lot of time for Paul Craig Roberts (former assistant secretary of the treasury for economic policy under Reagan (from memory) and associate editor of the Wall St. Journal) who has written quite a few articles regarding this “attack” in the past 2 weeks. If the majority of the voters in the US could be possibly educated as to who & what the privately owned Fed actually “is” now – more or less – JPMorgan Chase & Goldman “Sucks” (together with the Fed’s history & beginnings), then they would surely revolt ‘en mass – Of course, this is why the Home-Guard was massively armed back in early 2013 (for when the people take to the streets) in protest when the proverbial hits the fan & everything is “shut-down”.
Yes, Preston James is another who is trying to educate the ignorant, dull masses – Smedley Butler (US Marine Corps Major General) first wrote “War is a Racket” in 1935 –
I had not heard of “Iron Mike” Harris until now – Thanks!
Your reasoning & explanation (with the help of James Turk) regarding the calculations of gold and China’s massive ownership of $3.75 trillion of foreign reserves is a very convincing & logical argument for gold to again be the leading contender for a solid backing for the coming, next major global monetary system. As I have said – the Chinese are extremely “forward thinkers” – Will the Elite with their colossal wealth & enormous gold holdings be able to counter this “what seems to be” inevitable conclusion? I know that the Elitists infiltrated the banks of China in the early 2000’s – What will this mean? – I do not know!
Whatever – I will continue to feel contented in stacking “physical” gold & silver & keeping it away from the banks, especially while it is, at present the best buy in history. Everything else, except hard assets is a gamble, unless you are convinced that “certain” mining stocks are worth buying while they’re going cheap & you believe they are going to a worthwhile investment, which some will no doubt be.
It is a pleasure to have come across you Kent. Are you on twitter?
“We were instilled with practices of memory which is never forgotten (just like riding a bike).”
Yes, it is internalized. Gold is ‘internalized’ as money for the last 5,000 years but the Fed wants to change that with fiat paper Federal Reserve Notes, aka US dollars, created out of thin air.
According to Ken O’ Keefe, an ex marine who has given up his US citizen, the Fed is the single most dangerous threat to the freedom and happiness of all Americans.
It is controlled by the RKM and the latter is orchestrating a worldwide chaos, using American blood and treasures, to dominate the world.
The events are unfolding right in front of our eyes, even to the deliberate shooting down of the Russian jet over Syrian airspace by Turkey, to usher in the US and Nato forces to up the ante against Russia for bombing the crap out of ISIL.
What the RKM wants is to take revenge on Russia for decimating their egregious homeland circa 1020 AD.
According to Fulford there is a fraction in the Pentagon that don’t subscribe to the RKM’s dictate. Good news.
Americans patriots like Jimmy Carter, PCR and Ron Paul know the Truth and so did JFK and the latter paid the ultimate prize for printing silver certificates to challenge the FRNs.
I hope P James and Iron Mike will wake up the American sleep-walkers soon. As Jefferson once said (and I paraphrase) that if the American people knew what the bankers are doing with inflation and other shady deals to control the country, their forefathers conquered, there will be another revolution.
The Yuan will be the world reserve currency once it is backed by gold or silver or better still by both because Newton said ” Gentlemen, in applied mathematics, you must describe your unit.”
“I will continue to feel contented in stacking “physical” gold & silver & keeping it away from the banks,”
Yes and keep them away from the US as there is no guarantee there won’t be another confiscation like in 1933.
Glad to know you too. We can chat on Wolfstreet as Wolf is a prolific writer, with many excellent articles and we can keep him on the ‘straight and narrow’. Just kidding, Wolf,
No, I am not on Twitter and don’t plan to, especially after the Ed Snowden affair surfaced. Google the BBC interview with him and his revelations on Tracking ‘Smurfs’, etc. They don’t want to own you but they want to own the smartphone to listen and track you.
Bye for now and take care.
Very interesting opinions in this blog:
Today I tried to get physical 999 % silver
(1oz certified govt. coins), they were sold out, the
owner of the place said he had sold “a thousand
This is where you’all shoud put your $ !
Great comment Charles – Silver has to be the best buy in history right now because of the manipulation in prices in the west to keep the Dollar appearing strong. Besides being just an “investment” silver has a thousand industrial uses, especially in the electronic & photovoltaics (PV) fields. In the near future the gold/silver ratio will narrow considerably & “spectacularly” and when the proverbial hits the fan, the P.Metals will be a very important “solid” insurance to be holding “in your hands” (not stored within the banking sector). There is a short squeeze already forming with both metals with waiting times for both physical gold & silver orders getting longer, especially in quantities – I should know, I work for a bullion exchange. When the almighty “propped-up” dollar begins it’s descent through lack of credibility and trust, it’s demise will come extremely quickly and that’s of course if one of a vast number of possible “Black Swan” events doesn’t come out of left-field at any time sooner. Nothing wrong with being prepared I suppose! – Just don’t invest in IOU “paper metals”.
@ Charles, I agree with you absolutely when you said Silver is “where you’all shoud put your $ !”. Silver sold out? No worries. See below :
I also agree with your sentiment that “In the near future the gold/silver ratio will narrow considerably & “spectacularly” and when the proverbial hits the fan,..”
Why? Because for hundreds of year the gold/silver ratio had been 16 to1.
In circa1980/81, when the Hunt bros tried to corner the silver market after the price of crude oil quadrupled and gold shot up to US$810 an oz, guess what the price of silver was an oz? US$50 an oz.
And the gold/silver was 16.2 (810/50) at the material time.
Now the gold/silver ratio is an *incredible* 76.1 to 1, (1077.60/14.16) meaning either gold is too expensive or silver is too cheap. Take your pick. I know what mine is.
Disclaimer: I am not a qualified financial adviser.
Yes Kent – We are now in “unprecedented times” of manipulated markets which have “never” been subject to such intervention. These unsustainable “controls” will always fail due to the gravity of supply and demand which always eventuate. I am not an economist or financial adviser either, but at least I have educated myself regarding the Austrian School of Economics which is the only true way.
All markets are now manipulated and this cannot last. I now have little sympathy for the ignorant & greedy corporate world who have less idea now than before 2008 which was just an entree’ as to what is soon to come. I do however feel for the innocent masses who will lose their superannuation savings. I have tried to educate as many as possible – You can lead a horse to water?
1 I agree “We are now in “unprecedented times” of manipulated markets which have “never” been subject to such intervention”
It’s a paradox that no US recalcitrant is in jail for the 2008 Great Recession, the egregious Libor and gold & silver price manipulations like there are in Iceland. There the criminals are put in the slammer for up to 20 years.
2 “Austrian School of Economics which is the only true way.”? Yup, the truism is that you cannot consume more than you produce, especially the seed corns.
2 “All markets are now manipulated and this cannot last.”
I am not a Buddhist, like the actor Richard Gere is but Buddha once said this “There are three things that cannot long be hidden: The Sun, the Moon and the Truth.”
3 “I now have little sympathy for the ignorant & greedy corporate world who have less idea now than before 2008”
The 1% who owns an estimated 80% of the world’s wealth cannot take their money with them because at the ‘Pearly Gates’ they will be told to drop their money in a big trash can.
What they should do with their ill-gotten gains now is to feed the poor and find a cure the sick, not use vaccines, SARS, MERS, Ebola ( now an STD) and swine flu to depopulate the world.