Is the euro dead yet? And how is the Chinese Renminbi doing?
Total global foreign exchange reserves, in all currencies, rose to $11.4 trillion in the fourth quarter 2018, according to the IMF’s just released COFER data. These foreign exchange reserves do not include the Federal Reserve’s holdings of dollar-denominated assets, such as Treasury securities and mortgage-backed securities. But the amount of USD-denominated exchange reserves ticked down to $6.62 trillion, and the dollar’s share of global foreign exchanges reserves dropped to 61.7%, the lowest since 2013.
In 1999, the euro became an accounting currency in the financial markets, replacing the European Currency Unit. On January 1, 2002, Euro banknotes were released into circulation and gradually replaced the national banknotes of the original member states of the Eurozone. Note the drop of the dollar’s share, from 71.5% in 2001 to 66.5% in 2002. Today, the euro has replaced 19 national currencies. And the dollar’s share is down to 61.7%:
In Q4, the euro’s share of foreign exchange reserves rose to 20.7%, the highest since Q4 2014. The creation of the euro – the idea of eventually consolidating all European currencies in one big currency – was an effort to knock the dollar off its hegemonic pedestal. The goal was for the euro to eventually reach “parity” with the dollar. Then the euro debt crisis happened.
The degree of dominance of the US dollar as global reserve currency is determined by the amounts of US-dollar-denominated financial assets – US Treasury securities, corporate bonds, etc. – that central banks other than the Fed are holding in their foreign exchange reserves. The dollar’s role as a global reserve currency diminishes when central banks shed their dollar holdings and take on assets denominated in other currencies.
The combined share of the dollar and the euro edged down to 82.4% in Q4 2018. The remaining currencies make up 17.6% of allocated global reserve currencies. On October 1, 2016, the IMF added the Chinese renminbi to its currency basket, the Special Drawing Rights (SDR), elevating it to an official global reserve currency. Hopes by some folks that it would dethrone the dollar as hegemon have been disappointed. But little by little, the renminbi is gaining. In Q4 2018, with a share of 1.89%, it beat the Canadian dollar for the first time and moved up to fifth place on the list:
- Dollar: 61.7%
- Euro: 20.7%
- Japanese yen: 5.2%
- UK pound sterling, at 4.4%.
- Chinese renminbi: 1.9% (record)
- Canadian Dollar: 1.8%
- Australian dollar: 1.6%
- Swiss franc: 0.15%
- Other: 2.48%
This chart shows the battle among the lesser reserve currencies (without the dollar and the euro). Note the surge of the yen’s share from 3.6% in 2014 to 5.2% at the end of 2018. The renminbi is the red line that starts in 2016. The share of “other currencies” dropped that year as the renminbi became an entry. The IMF doesn’t disclose details, but we can assume that the renminbi had been listed under “other currencies” until 2016, when it was separated out.
But with the USD and the EUR added to the chart, the other currencies are reduced to their place at the bottom, with the Chinese renminbi (bright red line at the bottom) still near irrelevance:
As the IMF points out, this data is based on the currencies’ share of “allocated” reserves. Not all central banks disclose to the IMF how their total foreign exchange reserves are “allocated” among specific currencies. But disclosure has increased and the data is becoming more complete. In Q4 2014, “allocated” reserves accounted for only 59% of total reserves; now they account for 94%.
And a special word about the theory that the US, as the country with “the” global reserve currency, “must have” a large trade deficit with the rest of the world. This “must have” is clearly not the case because the Eurozone – with the second largest reserve currency – has a large trade surplus with the rest of the world, showing that a major reserve currency can be backed by a big trade surplus. Japan also has a large trade surplus.
But there is another way of looking at this: The fact that the dollar is the largest reserve currency and largest international funding currency allows the US to easily fund those massive trade deficits, which has made the trade deficits possible over the past two decades. This may not always be the case in the future, but so far so good, as they say.
The US trade deficit goes out-of-whack as Corporate America searches for cheap labor and tax benefits. Read... Good Lordy, What a Banner Year 2018 was for China, Other Countries, and Corporate America
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America’s fake data and total lies spell the end of the U.S. dollar. Maybe the democrats will win the 2020 election and bring honesty and integrity back to America.
LMAOOOOOOOO! Best Fools joke ever!
got me too, democrats and honesty have never seen the same corridor…
Frank honesty or intellectual rigor from ANY party in the halls of power? Especially when those in the halls of power only reflect the true mores and concerns of the citizenry (who seem to only want simple and easy answers/action to very difficult challenges) in order to gain re-election? Is our American society truly as virtuous as we like to paint it? Do we have much of a clue anymore about how our nation arrived the world’s dance?
For now, Jake, it’s just-Chinatown…
… and may we all find a better day.
Excellent article! The Irony… I was just debating and analyzing China’s Foreign Reserves with others, I am not a Forex Trader tho… It’s real number is somewhere around 1-1.5 Trillion US, much smaller then reported. They always have to portray this invincibility facade right ? One month Bloomberg noted 60 Billion in Outflows, yet cpp claimed Reserves increased by 10, constantly mis matching how much they spend a month defending there RMB… From 12-15 they spent around 30-50 Billion US a month to defend RMB, late 15-mid 16 they spent 50-100 a month, mid 16-mid 18 10-30 a month, mid 18-present anywhere from 30 to 50 a month. Given the size of economy, 1 Trillion in Reserves is dangerously low given running account deficits now, plus capital outflow and defending currency…
There is immense pressure on china now, believe me Wolf, I do not think they will hold it together past 2019, running negative account is the end game, given they burn through such reserves on a monthly basis… Or they let RMB Float, but they won’t. They will go bankrupt defending it
Well said Lemko ?️ thank you for sharing real-time facts that aren’t whitewashed to make the “people” feel better about the problems currently effecting us all. Well done ?
Democrats can only bring devision being one is the solution
@ George-Not much for multiparty democracy, are we? May we all find a better day…
Lemko,
“China’s Foreign Reserves… It’s real number is somewhere around 1-1.5 Trillion US, much smaller then reported.”
That’s the amount of China’s holdings of US Treasury securities.
But China also holds US corporate bonds and securities denominated in euros, yen, Australian dollars, etc., The total of all foreign currency denominated assets, including US Treasuries, it a lot larger than just “1-1.5 trillion US.”
That said, the $3 trillion that China is brandishing may be a push.
What happens when you add their gold reserve to that?
Chinese gold is interesting, they have been buying up for years, but it doesn’t show in their FOREX reserves.
So where exactly do they hide their probably 20 thousand tons of gold?
Can the US dollar go anywhere but down? Annual deficits are around 5% of GDP, much higher than other industrialized countries. Neither Republicans or Democrats want any tightening of the purse. Instead, they want to expand the deficits through tax cuts or spending. It’s no secret that Trump wants the dollar lower for trade reasons. Powell is now responding to mild stock market drops, in attempts to sustain asset inflation. High unstated inflation will apparently be pursued to deal with the debt overload, while the Fed denies responsibility for the inequalities it creates. Public outcries from workers are relatively mild (i.e., no yellow jackets or street riots yet).
People often say the US dollar is the cleanest dirty shirt, but I’m not so sure about that. Currency debasement has picked up lots of momentum in the US with no reversals in sight yet.
People are scaling bridges and buildings to get good selfies, but the bigger show is watching the financial sector play with dynamite.
Hi Bobber,
(I’m replying to your comment from a while back but same topic).
I agree.
Dollar has to go down in the long run. the debts are impossible to pay in real terms without bondage, chain-gangs and the like. default is an option, but when you can print why do that? Munis and states may go belly up but the feds don’t have to. If Stockton, CA had a printing press in their city hall would they ever have tightened their purse strings? nope.
As for the parties – Republicans might talk tough on debt and spending cuts but they’re full of it. They want their freebies like everyone else and wont touch entitlements or any of the other hot-button issues that involve getting something now and paying for it later. That being said, the debt is not Trump’s “fault” and anyone who gets in the WH has to spend. inflation will come.
“The US can pay any debt it has because we can always print money. There is zero probability of default by US.”
ALAN GREENSPAN interviewed in CNBC
So when Federal Reserve print, why inflation is not obvious or little. May because of this :-
US Federal Reserve believe they have discovered the secret to perpetual prosperity by printing US Dollar toilet paper and force Japan to take it.
PetroDollar is supported by unique genius residing in the Ivy League universities such as Harvard, Yale, Princeton, etc.
These highly intelligent super academic continue to write ambiguous economics and financials principles, using BOMBASTIC english words, in order to mislead ordinary people into believing their glorified high level financial PONZI scam, is the only way to improve their lives.
There has been a HUGE amount of inflation — but it was asset price inflation, not consumer price inflation. Asset price inflation causes financial instability, and when it reverses, it may cause banks to collapse. And it scared even the doves at the Fed, such as Rosengren.
The loss of reserve status does remediate damage to the value of the dollar (devaluing is a stated political policy). The end of dollar hegemony would have limited consequences. Until 2020, nothing is going to happen. Hot foreign money will flow into this market, after 2020 when fiscal spending, and debt issuance, becomes an issue, the dollar gets trashed and it’s game OFF.
Ambrose Bierce
Ok, lets play your game:
o “Dollar gets trashed”…and the world’s money goes where? The Euro? The Renminbi? The ruble? Australian dollar? Bitcoin?
Just exactly WHERE does the money go?
I’m reading lots of impenetrable but supposedly knowledgable inside baseball stuff about central banks, gold, yada yada yada, but it’s essentially the strength of a national economy that supports the currency.
Just exactly WHICH & HOW will another global economy surpass the US (in real terms)?
And all this happens starting in 2020?
no way, it took 70 years for brexit to cause confusion in Britain after losing reserve…..
the dollar has a lot of shelf life left……plus were like 100x larger in GDP then the Brits ever were
You are Physically larger than the English were, are not actually worth more in Apple to Apple comparisons, (Just as china is only bigger Economy than the US until you compare GDP per Capita) do not have the Quality or Trust peopel had and still have in the English, To many Enrons Etc.
You also had to use underhanded tactics to drive sterling out
Europe got the Marshall plan and England got the Bills. You forced England to forgive Huge German Debts/Reparation’s it simply could not afford to forgive. Backed Egypt over England and France simply to hurt them during Suez Etc.
England shot itself in Both feet after WW II when it imported immigrant cheap Labour at the same time the English worker was fleeing England as wages were not rising due to cheap immigrant Labour.
There was no Labour shortage in England post WW II there was a CHEAP Labour shortage. The English industrialists have been doing the same to the country ever since.
Now it has that many immigrant takers not working in cities, that it can no longer support its healthcare, pensions or social services.
Immigration is good if you bring Quality peopel you need, it is bad when Industrialists use it to bring cheap labour to force down wages and conditions.
The 1%/Idustrialists in America, are doing almost the same thing, to America.
The peopel who elected P45 are the same peopel who voted for Brexit from the same regions “Rural Red States English Rural Agriculturalists” for the same reasons.
A reserve currency dosent necessarily need to be strong. Just trustworthy and stable. It Looks like the Yen may become the currency of choice in the CPTPP. Although the Japanese will print like crazy to prevent it replacing the US $ Globally. Just as they did in the late 80’s. As they do not wish the negative side effects Global reserve # 1 brings.
Which is another nail in the US $ Coffin.
The devaluing of the purchasing power of the dollar will end when the dollar is “trashed”. (The Fx carousel is legerdemain) PMs still purchase what they did fifty years ago when it took 1/10th the number of dollars to buy the same thing it does now (hence stocks go up, it takes more to buy a share of corporate earnings) The stated policy of the incumbent is to default on the bond market. Bonds will sell at less than face value. None of this can be done before the election.
JV,
My guess is it goes into gold and other hard assets. If u were a major hard asset producer today and you had the option, would you demand payment in gold or would you be happy with fiat currency?
Who knows when “it” is going to end? But if I were the head of major asset producer, be it country or company, I wouldn’t want to have to face my constituents as the guy who said, “I’m good with fiat, let others take the gold.”
For example the Brown Bottom
In Western Australia the economy is picking up on the back of gold and Lithium mining. 2000 jobs have been added in the mines.
Gold production is up 4.5% on increased demand, even though the authorities claim that demand for gold is subdued?
I think the smart money is already moving into gold, in anticipation of a global fiat currency collapse.
Brown is a Scot and not only an English hater but also an English upper-class hater.
Just like murdoch, he sought to destroy what he was not born into, and could never be part of.
He knew exactly what he was doing when he gave the majority of Englands gold away.
“Ok, lets play your game:
o “Dollar gets trashed”…and the world’s money goes where? The Euro? The Renminbi? The ruble? Australian dollar? Bitcoin?
Just exactly WHERE does the money go?”
This has been the problem since Nixon
I dont know where it WILL go.
I do know it WILL NOT go to RMB, RBL, BTC.
Currency Union without Fiscal union is insanity, so that is why the EUR still has serious issues, and is also not a serious contender.
This problem is THE problem that has kept the US $ at peak reserve. for some time
When the global financial Operators make a decision, the US will be in DEEP DEEP Do, very Quickly.
This time I do not envisage an orderly well mannered transition such as occurred when the US drove out sterling with underhanded tactics.
It might be interesting to view the data that gives a history of all foreign exchange reserves held globally as share of total central bank reserves, or as share of global gdp, or inflation adjusted. I am just wondering if world foreign exchange reserves are being swamped out by blance sheet sizes to being more irrelevant, or something along those lines, or if they still strongly represent the economic order we are used to thinking they do? Just a thought.
If A monetizes much debt to trade with B, then B must create an equivalent amount of its own currency. A creates a security, B creates money. Bob Prechter notes A exports inflation, B exports deflation. If A is running a trade deficit they need hold few reserves, while B already a disproportionate share. By exchanging T bonds in lieu of currency, and running a deficit, BB says that A, (the US) has been able to “sterilize” it’s payment to B (China). Thus B is able to control inflation and A avoids deflation. When B converts its reserves the equation changes. China’s inflation rate is rising while the US is disinflating (1.7 projected CPI next 10 years) The accepted policy to counter disinflation is to lower rates, however when you lower rates that brings new bonds to market which further devalues the principle. (In the great bond bull market adding more bonds to global supply raised the value of the principle, now it works the other way) . In a market where new issue is balanced with maturing securities being retired or rolled over the disinflation would result in higher yields. The only option government has is to reduce their share of new supply. In true deflation, yields will fall as well as bond prices.
A simpler explanation is that the US is paying its trade deficit with treasuries while China keeps its currency pegged, which is easier to do when treasuries are used as a side calculation to right the total balance and keep price appearance . The effect in real terms though is to cause price inflation in China (because more is exported than imported that deflates supply to Chinese hence increases price) and price deflation in US. However it could be said that the overall benefits of trade actually deflate prices for both ( technology transfer placed in productive hands for example) or inflate prices for both ( consumer waste or misuse of resources causing competition). Those are subjective and I won’t even try to calculate them.
However the holding of foreign reserves does not occur as a deficit grant in my opinion, I think
http://www.bis.org/publ/qtrpdf/r_qt1412e.pdf
is closer to the truth. If so then that is one reason the US will not want China to fail, but nor want it more independent in the global market – both would shrink the dollar trade area and so dollar hegemony and US influence. I guess the US knows it cannot have it both ways so what happens next is something of a question.
The process of “sterilization” was a fools game. The money is leaking into system slowly; inflation there, deflation here, though rates in both countries are similar. Similar to the discussion about EUD/USD parity a few years ago. Shrink the global monetary base you shrink everyone.
Bottom line is that China has been subsidizing the low rate of inflation in the United States for the last 25 years, by creating this currency wall where US dollars never enter the country’s economy directly but are kept in the central banking system and converted internally to renminbi for its citizens and companies.
The effect has been to prevent the renminbi from gaining its true value in the hugely unequal trade equation with the US, as had happened to the yen and Deutsche Mark as the trade deficits with Japan and Germany grew. And so as Made in China products progressively dominated the durable goods sector of the American economy, this currency wall made the cost of durable goods in the U.S. increasingly cheaper.
A while back I had posted several articles where economists had pinpointed the sharp drop in the prices of durable goods as the primary reason for the low overall rate of inflation in the U.S. over the last 25 years. The factor that was unsaid in those articles was that China’s continued currency wall to keep its products cheap, as the trade deficit grew, has also been a contributing factor. Other factors – automation, general globalization of trade with other cheaper countries, etc., also have contributed to the low cost of durable goods in the U.S., but considering the dominance of Chinese manufactured products being sold in the U.S. now, the currency wall has to be the #1 factor that is continuing to prop up those low, low prices.
So, yes, if indeed China is reaching the end of the line in being able to prop up its currency wall, and prevent the renminbi from exploding in value relative to the dollar, then what we will soon see is a rise in inflation in the U.S. If China actually implodes, as a lot of people here seem to wish, we will see a rapid and explosive rise in inflation, as all those once cheap products Made in China disappear (iPhones, laptops, computer parts, hair dryers, 90% of every consumer durable good sold at Walmart, etc.).
Yes, globalization does mean that some other cheap country, perhaps India or one of the poorer Southeast Asian countries, perhaps even Africa, can eventually take on the manufacturing capacity of China. But that will NOT happen overnight.
For example, the Shenzhen Special Economic Zone of China was uniquely configured (with help from government economic policy) to produce every single part that goes into a cellphone. Every. Single. Part. (Google this story: “Made In China: Meet The Guy Who Built An iPhone Using Only Shenzhen’s Cell Phone Markets”) The infrastructure and know-how to replicate the economies of scale that allow for such cheap production of a sophisticated device like a cellphone will not be easily transplanted overnight to another country, say India.
During that period of transition, durable goods like cellphones will become harder to obtain, and thus will rapidly rise in price.
So, any implosion of China, or breakdown of its currency wall, will result in the massive inflation that we have all been expecting from the money inflation that has occurred in the U.S.
Gandalf,
Agreed about on your point about China causing deflation/preventing inflation in USA. But it seems also true that the Chinese real estate bubble is going to lead to inflation in China, too, no? And Kyle Bass and others have made a strong have case for China needing to inflate it’s way out it’s non performing loans. I guess you basically have to be believe two things at the same time. Like financial asset inflation in the USA coincident with (some) consumer price deflation.
Ragnar D,
I can’t even begin to figure out how China is going to end up. We simply don’t have enough accurate information to make good predictions. My feeling is that the Communist Party there has a tight enough grip on dissent in the country that it is not likely to lose control no matter what.
I agree that it is unlikely that China will be able to continue to keep a cheap renminbi and keep growing its economy by manufacturing and exporting goods cheaply. And so, regardless of what China does going forward, that will have major consequences for inflation in the U.S.
The clueless Fed is about to find out the answer to its question as to why inflation in the U.S. has been so “stubbornly low”
The supply chain for smartphone design and manufacturing can be duplicated in Penang, Malaysia, which was used to be known as the Sillicon Valley of South East Asia before the 1997-98 Asia Financial crisis.
After the Asia Financial crisis, many foreign MNC shifted their electronics factory operation to China, due to China weaponised the Yuan, by making a huge devaluation as shown below, which make China labor very cheap compare to Malaysia and Thailand.
US$1 = 4.5 Yuan in 1994
US$1 = 8.8 Yuan in 1996
In fact the Asia Financial crisis in 1997-98 was caused by China manipulate the Yuan to be very weak, in a sudden manner.
Many American and Japanese MNC still maintain some electronic factory operation in Penang. There are also many Malaysia vendors and suppliers to the MNC still operating in Penang.
Malaysia can be the new design and manufacturing hub for smartphone and electronics because the labor cost is much cheaper than China now.
Unfortunately the US government are reluctant to support Malaysia by giving tariff incentives to Malaysia. It is all politics driven.
Is this why the United States cannot allow inflation to get out of hand?
The economy never recovered from 2008 but has been covered up by the extreme amount of money printed (QE) and credit created. The phantom wealth that has been created since the 2008 financial crisis is going to basically evaporate.
The monetary authorities running the paper currency schemes of the present, are anxious to forestall significant rises in the currency price of physical gold. Because such rises would diminish confidence in the lasting value of the paper currency in use today.
When the big reset occurs, concerns over paper claims and encumbrances on central bank gold bullion, will drive liquid capital into the personal ownership of physical gold bullion. Holders of paper claims to gold will be offered settlement in cash at prices well below the physical market.
We are now witness of this happening now. The global physical gold bullion market has become increasingly very tight. Yes, you may still purchase the odd lot of coins, but buyers of large amounts of bullion are having a difficult time finding a source of supply in size, without offering an enticing premium.
Of interest, the Royal Canadian Mint, who are the custodians for Sprott Asset Managements PM’s, recently sent a letter to Sprott outlining an increase in fees for withdrawls. Of particular interest is the reason for this fee increase:
“the significant high-volume withdrawl requests we are currently receiving from your firm”.
Key words here are “SIGNIFICANT HIGH-VOLUME”.
Redemptions by physical gold bullion owners are growing increasingly larger. This is fear motivated. Fear of what? Of the fractional gold markets. Based on published data from the Comex and the LBMA, it can be seen that what passes for gold trading, is nothing more than unallocated, fractionally-backed, speculative trading on the gold price, that has very little to do with physical gold movements into or out of vaults in New York or London. A central bank price control mechanism.
Gold prices are correlated with oil and other commodity prices.
I was a big follower of Richard Russell and jim Grant over a decade ago and subscribed to their newsletters. Not quite a waste of time but not a very productive use either. I was probably taken in by the spike in gold from 2003-2007.
Gold has been a fear trade for the 25 years i have been following markets.
The S&P 500 has done better over the last 25 years. Also, the citizens of the world benefit from global Central Bank liquidity. It has raised the standard of living tremendously for over half the world’s population in the last 25 years alone. How many people have toilets and cell phones in India today compared to just 10 years ago.
China’s GDP has gone from $1 trillion to almost $12 trillion in less than 20 years. Great tailwind for risk asset prices for a very very long time.
Technology advances have been spectacular over the last 25 years since i graduated from Biz school.
But Gold ? No thanks.
The ONLY corelationship that exists among gold, oil and other commodities is that they are at present, priced in fiat US dollars.
Gold has ALWAYS been the “go to” safe haven asset.
Citizens benefit from central bank liquidity? Really? When CB’s create that “liquidity” by printing (QE) therefore destroying that currencies purchasing power. That’s some “benefit”!
Most all assets today are paper based. Which will return to their intrinsic value of zero.
You “graduated from Biz school”. Was financial history part of the curriculum? If not, suggest a course of study involving that sector.
“Gold has ALWAYS been the “go to” safe haven asset.”
What does that mean ? Somebody could have said that the day after Pearl Harbor was bombed. So what.
BTW, my Finance Professor advised me in 1993 to invest in stocks (before Index investing took off) early and to invest frequently. He could have said to buy gold early and to buy gold frequently. But i probably would not have attended his class.
I liked my Professor. Furthermore, what he said appealed to me. To each his/her own.
OLI,
Thing is youre both right. And people DO benefit from CB liquidity. The last decades antics not withstanding. Businesses need loans and need lots of liquidity in the system so they can earn money and repay the loans. That they destroy the purchasing power doesnt matter as long as you save in something other than that money. It matters, in otherwords, to the saver. But if you save in dollars and akiddy111 borrows in dollars you two will be forever at each others throats. Save in gold and let him print all day! Our current insanity is that ‘savers’ are in the same paper that people need to pay debts! Nuthin but trouble. Invest gamble save as you like but at least know which one youre doing.
Also perhaps of intrest to you is thinking about just exactly what IS bullion banking? Hint: its only been around since 1971. Before that they just called it banking!
Yes Globalization has greatly benefitted multi – national companies , China and a few other third world countries in the past 25 years
But what has happened in the US ,Europe , Japan and England.
Median real family income has stagnated in the US and only recently has risen slightly above its levels 25 years ago.Real hourly wages topped out on the 60s and 70s. Almost all of the gains in the economy has inured to the top %20 and especially the top %1 and 1/10 of %1. This has coincided with the financialization of the economy. The GINI coefficient (inequality ) is not far from its all time highs in the late 1920s. Many parts of our great industrial cities are vacant shells with very high crime rates. All of this was orchestrated by the multi- national companies , who could care less about AMERICA. And increasingly these executives have adopted the Harvard Business School model. I have known a number of Harvard Business School graduates. I would describe every one of them as being very smart to brilliant. But I would also ascribe most of them as having the ethics of a jackal.
Look at Europe. The Grecian crisis is well known, but Spain , Portugal and now Italy are not far behind with huge levels of unemployment and growing populist movements.
Japan has been declining since 1989. Its very low birth rate reflect a sense of pessimism among its younger citizens. For all practical purposes it’s bond market does not exist and its stock market is increasingly dominated by purchases by the BOJ.
And England has been decimated by two world wars and its desire to try to maintain a world wide presence . My guess is that most Briton’s were better off 25 years ago.
Every week there seems to be another article about the rise of the Chinese military and the risk of a confrontation with the US. And who has financed this Chinese military . Primarily the US and secondarily those other countries running large deficits with China.
akiddy111
I have about a third of all my capital in physical gold. It’s not because I expect, or even want, gains from it. It’s purely because I want some sort of possible insurance against the hell that is coming down the pipeline.
I don’t know whether gold is going to help me, either, but it’s at least a placement that is somewhat contrary to many other placements, and gold has tended to function quite well as a mechanism to transfer wealth between monetary regimes.
With respect to your reference to tech, I respect its application to a degree (I even own a modest company implemeting it!), but I cannot see it making up for the ever declining productivity of our most important energy sources. It, like anything else, is subject to entropy and diminishing returns, and cannot overcome real limits no matter how far we push it.
As I see it we long ago passed our limits, and we are confronting the ever declining productivity of new energy sources with ever more new debt simulating future energy payments (as well as the ongoing accelerating impoverishment of even renewable resources). These unpayable promises are, on some date that I cannot predict, going to hit a brick wall and collapse.
Let’s see which horrible effects hit us first; those of collapsing debt and rolling defaults, those of resource depletion and habitat destruction, or those of climate change and increasingly unpredictable agricultural output.
The exponential curve concentrates a lot of crap int a short time period as it goes vertical…
There you have it. The world is ending. There is no way we will survive.
Long SPX.
“Gold prices are correlated with oil and other commodity prices”
–THAT is exactly the issue. Gold is not a commodity. Its market is nonsensical. as long as it correlates with these other commodities we can buy at a discount. it’s quite a deal.
“How many people have toilets and cell phones in India today compared to just 10 years ago”
–idk but I bet they stack gold just the same!! hahaha
25 years is not a long enough period to make a judgement. It’s been 50 years since the US abandoned the gold standard to stop the run on the dollar, and that is a very small amount of time relative to the history of money.
If gold had no intrinsic value, the US Government would not pillage as much gold as it does.
akiddy,
So you are down on gold because it hasn’t gone up a lot recently?
Were you down gold when it went from $200 to $1900 from 2000 to 2011? Why did it go up during that period?
Consider the valuations of stocks and the trend of interest rates over the past 40 years. Any correlation? What direction might interest rates take in the next 10 – 40 years? What might that do to stock prices?
Consider the amount of fiat money that has been printed in the past decade and the relative non movement in the price of gold. Do you think that correlation will hold for the next 10 – 40 years?
Do you think at present all is fairly valued given what the future is likely to bring?
So Jim Grant hasn’t put much money in your pocket, does that make his arguments false?
In 1972, Chinese premier Zhou Enlai was asked about the impact of the French Revolution. “Too early to say,” he replied. The Thanksgiving Day turkey thinks life is fantastic for 364 days. Does that make him a good forecaster?
“In 1972, Chinese premier Zhou Enlai was asked about the impact of the French Revolution. “Too early to say,” he replied.”
Be careful using that one there is a dispute that Zhou was not referring to the 18Th century event but a 20Th century minor event in 1968.
https://communications.catholic.edu/in-the-media/2015/11/ruddy-commonweal.html
@d
Thanks. Good find.
But to quote Ruddy….
“but the point remains: an event’s meaning can take a long time to work itself out”
Which is my point. Just because something hasn’t happend yet, doesn’t mean it will not happen.
[This may not always be the case in the future, but so far so good, as they say.]
More money for the Pentacrats at the Pentagon. Yaaaaaa!
It would be interesting to have more detailed information concerning the “allocated” reserves among the individual banks.
Good news story. Looking forward to seeing it drop further.
I would really like to see a new International currency and/or currency basket available. Then, let each Country or Region purchase the needed trade currency on the strength of their economy and country.
Countries already do this on a daily basis. It just so happens that when you add up all the numbers, the USD still rules.
There has never been, is not now, and never will be a silver bullet “perfect global currency”. Don’t believe it? look at what the euro is doing to Greece and Italy. One size never will fit all.
Well and succinctly put.
At one point silver was critical to trading with the east
Since the british east India company lacked the amounts of silver China demanded this gave an incentive to force opium as a barter “currency” in lieu of silver which the BEIC was complicit in re the Opium wars.with the weat gold was the shining metal but China insisted on silver in trade for tea and the Boston tea party put a crimp on the British east India’s profits. Of course the story doesn’t end there nor will the shift in the currency reserve “wars”
“At one point silver was critical to trading with the east
Since the british east India company lacked the amounts of silver China demanded this gave an incentive to force opium as a barter “currency” in lieu of silver which”
The English were not the only group using opium in this way. Americans were trading with Opium form Lebanon/Turkey hence thelater Barbary pirate problems. It was a world physical silver shortage crisis, not a shortage of funds, due to chinese mercantilism trading practices and hoarding of silver by china. china would sell in silver, it would not buy in silver and china had the HUGE TRADE SURPLUS AGAIN.
The chinese Mercantileists are now communist but still have not learnt from their own history instead falsely painting themselves as victims of European drug dealers. State Mercantilism can not be for very long without war of some form.
The Boston Tea party had Nothing to do with it.
Painting the Opium Trade as British only trade, is simply another historical false hood perpetrated by those who hate England its nearly as bad as anti Jewish blood libels.
@OutLookingIn,
Great post. You GET it!!!
: > )
So, at the end of the day, if I happen to have $100B that I wish to “protect” (say, for example, Venezuela’s Maduro, or even Russia’s Putin…), and, depending upon my sophistication & risk profile, I put most of it in $USD (nobody is stupid enough to think Italy/Spain will out-perform the USA), and the rest of it in other currencies so I can arbitrage all day long.
What the heck, if I’m Venezuela’s Maduro, or even Russia’s Putin, I can easily make money on futures because I can actually cause changes in my home currency. It’s good be (a crooked) king!
My understanding is that the fed will be buying the short end with the roll off from the long end. Like a last ditch alternate way to keep things rolling with the deficit and debt without QE feeding the banks cash.
Will this prevent inversion of the 2’s and 10’s but allow the long end to keep steepening?
The Fed sees the same things you do, and sees doing this as their best option. They can’t go much lower with rates, and it is well known in the public’s eye that the income discrepancy was accentuated by QE.
An enigma wrapped in a conundrum sprinkled with confusion, but no one seems to worried. Everyone thinks it will be OK because it has to. Get the popcorn, “Things Have Changed”
De-dollarization is on the loose and is showing signs of a pandemic. The pestilence was released in 1971 when tricky dick closed the gold window due to inflation from the Vietnam war and 1960’s spending.France wanted gold – tricky said no ,hey hey Breton Wood gotta go.In 1974 tricky sent super k (Kissinger) along with a Solomon bro gun slinger named simon to Saudia Arabia to tell them no more oil for cash you gotta take us treasuries and guns . An offer they could not refuse. The fiat dollar was truly born and it’s been a great ride.The war machine had all it needed.The world has caught on ,buying our debt may finance an intervention on you.Www.ine.cn (Shanghai oil future exchange) – oil for gold converted yuan(Rmb) is a petro dollar killer.Gold trade notes for international settlements are coming.And for me and you we get a de-valued domestic dollar which will buy little. The doctor has had this patient (dollar) on the gurney for study for a while.Hope abounds there is a vaccine ,neither a lender or borrower you be.Also get a dog my springer spaniel loves me.
The dollar is ALWAYS priced against something else, either another currency or against commodities or items representing a store of value. So when commentators state that the dollar is going to tube, do they mean against other FIAT currencies , or against gold or other commodities. I would argue that all of the other fiat currencies ( the Euro, the Yen , the Renimbi,the Ruble) have future problems greater than dollar .
@ RCohn,
Correct, but you forgot to include hard assets. I agree we in the USA will probably remain relatively more wealthy than many other countries due to the relative strength of our currency, despite likely future large declines against gold and oil, etc.
But like I posted earlier, if you are the holder of hard assets, and you have the option to take gold over fiat, what is that going do to the value of the fiat? Thus, IMO, the salient question is when do holders of hard assets insist on PM over fiat/
Thee last time that happened in the US. FDR made all the little guys hand in their PM at his deflated rates.
The richer types did comply as they had ample fiat on hand as well. They simply stored it away as they could afford to
What if America printed and monitized thereby wiping out
all Fed debt. I doubt it would affect reserve status much.
By buying Treasury securities and increasing the size of its portfolio , the FED had de facto monetized trillions of dollars of debt
Again, the cleanest dirty laundry…
In a world where deficits literally don’t matter, the only purpose of the political wrangling over budgets is to determine winners and losers.
Which is why we’re about to debate cuts to Social Security and Medicare right after the largest tax cuts in history…
If deficits do not matter why should any government have income taxes?
And what is to prevent the US government from assuming all state and local debt?
And what is to prevent the Federal government from starting new infrastructure projects such as the bullet train that the super liberals in Cal have abandoned or the new tunnel underneath the Hudson that Gov Christy abandoned after its cost escalated far beyond original estimates.
Well we were debating cuts to Medicare & Social Security under the previous President too. But those who liked him refused to acknowledge the fact he repeatedly fought for such cuts, drunk on the koolaid they were (and are), and he too passed the largest tax cut for the rich in history up to that point, too. Seems like nothing changes.
How dare people get to keep more of their money instead of giving it to the govt to waste? The monsters!! We need 90% tax rates for AOC can implement her insane ideas like building all the trains to replace air travel. Amirite?
Govbachev- yes but it would decrease the purchasing power of the dollar.
The Shanghai stock market moved up 2.58% today.
It approached the weekly ma200 from below.
Since June 2015 vertical rise and the vertical decline, the SSEC market primary trend is down.
Lower highs and lower lows are coming from China..
The move from Dec 2016 low is slightly above 3 month old.
Don’t be fooled by good news coming from China.
It might be the last chance to unload Chinese stocks, before
the market resume the downturn.
Now that is some useful information.
OK world, go buy Euros. Or Yen. Or Rubles. See how long that lasts.
Am I too late for the obligatory “the dollar has lot 99% of its purchasing power since 1913” post?
They haven’t gotten there yet. Give ’em time.
Hi Wolf,
(been having trouble posting so if you see duplicates please delete. sorry and thanks.)
In your opinion is it maybe that the Euro not having a tie to any one nation-state somehow allows it to have reserve status AND trade surplus? Like bypassing Triffin’s dilemma, where any other currency/nation would have to start shorting it’s trading partners and lavishing gifts on it’s domestic voters. The Euro IS a unique and interesting currency.
Also since 2013 the public sector for treasury purchases has been flat. (I had a link to the TIC data but thats what was giving me problems posting so too bad)
but in the spreadsheet “For. Official” means, I think, other governments (central banks). After 2008 China stepped up big time but as of 2013 foreign governments or, “For. Official” haven’t been buying.
So the next time the private sector gets spooked and stops buying, will some “For. Official” step in to save the day? or will we watch this sucker blow?
There is nothing in the chart suggesting USD losing it’s hegemony status. Am surprised seeing comments that there is.
There does continue to be a growing list of nations including China and Russia and many others, that have urgent and growing reasons get off USD…in response to increasingly brazen U.S. assumptions that every nation must obey Washington dictates.
But we not seeing that in the charts yet.
@ Timbers,
Agreed. That is one of the most interesting aspects of all this.
But behind the scenes they (Russia, China, etc). are talking and doing dedollarization AND loading up on gold, so….
IT IS ALWAYS WHAT YOU DON’T SEE and it is always so simple why A behaved like B but C refused to follow A and B. In the last melt up there was no liquidity. You know gasoline to run your car, money in the hands of the spender. Simple but effective. Markets dry up. This is the undercurrent otherwise we all wouldn’t be talking the same gloom and doom. Prediction is that the efforts of the USA to protect their reserve status and suck the rest of the world will come to end. You will be able to buy an apple component for beans. The aeroplane industry is about to crumble because we are spending too much time on what we think technology will do for us instead of thinking how much it is hurting us. It’s called convenience as a cover for displacement of labour. The dire consequences are closing in but the majority thinks there is always a fix!
But little by little, the renminbi is gaining.
Key word being “little”.
So far, anybody who wanted to sell oil outside the us$ got dragged into a war with the us.
Saddam hussein sold iraqi oil in euros for about half a year then his WMD’s neede to be taken out of the country.
In Lybia Muamar al Ghadaafi wanted to trade in gold-dinar with other african countries, and on top of it the Libyan central bank created money out of nothing and lent it to citizens without interest until Libya became suddenly a threat to humanity or something like that.
That list could go on and on but it should be clear that the dollar is backed by military power.
Two countries can not easily be bullied by this power, Russia and China.
Both of them work on getting independent of the dollar by creating non-dollar payment systems and buing internationally accepted money – gold.
The us has abused the SWIFT system used in international paymens; russia and china each work on alternatives that will not use the dollar.
when will be the tipping point?
The tipping point will be far far away as those two currencies are completely untrustworthy.
Trust and confidence are then two major elements of a reserve currency.
The biggest game changer that destroy America middle class factory jobs, is the Yuan peg to USD manipulation that happen in 1994-1996. This sudden change to cheapen the Yuan drastically, is the most powerful force that make China exporters competitive.
US$1 = 4.5 Yuan in 1994
US$1 = 8.8 Yuan in 1996
The Yuan ultra cheap currency policy is the main contributor to the chronic US trade deficit.
China is the biggest currency manipulator in the world.
Wall Street business leaders just close one eye, and see the great profit they can make by sourcing from China and retrench millions of factory workers. This game changer event in 1994, was never much discussed in the main stream media, because the Anglo American elite was behind this strategic currency move.
Yuan can be one of the SDR and forex trader like it very much, because you can never lose trade long term in Yuan against USD, because long term Yuan always get stronger.
But Yuan will never be a global reserve currency to replace US dollar hegemony because of the simple reason very few people want to invest long term in China hard assets. Ask any mafia and drug trafficker, do they want to be pay in Yuan, you know the answer.