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The Global Monetary Reset Is Under Way

Ahillock

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The Global Monetary Reset Is Under Way
Submitted by Tyler Durden on 12/21/2014 20:15 -0500



The Global Monetary Reset is under way, but people have not noticed it yet. The key is the move to zero interest rates.

Government debt almost everywhere is too high to ever pay off, let alone pay a traditional rate of interest on. As debts come due, including as bond issues mature, the only option governments have is to roll over the debt and accumulated interest, and the only way they can afford to do that is if money printing is a continued practice and interest rates are at or near zero. QE is the latest name for money-printing, inflating the amount of currency available. Logically, QE dilutes the value of a currency by inflating the number of currency units in circulation, and, theoretically, should lead to price inflation. However, if all nations engage in monetary expansion, the effects of money printing on exchange rates may be effectively concealed by a balance of expansion. Or, as in the case of the US dollar, a currency with the status of world reserve currency may be expanded with relative impunity by the nation creating that currency, effectively exporting its inflation to the rest of the world that continues to sell to that nation, or trades in a monetary system based on that currency. Injections of QE into an economy with weak fundamentals is likely to result in speculative bubbles as QE funds show up in investors' hands and not in the hands of general consumers.

Inflation has become a necessary element of economic life according to the mainstream meme of economists. Inflation is a key strategy in coping with immense and increasing debts. Debt so large that it cannot be paid must be inflated away or governments must default. Deflation makes current debt increasingly difficult to pay or service out of deflating GDP and tax revenue.

Exporting nations have engaged in competitive exchange rate reductions to gain or maintain competitiveness for their exports. A strong currency hurts export competitiveness but lowers the cost of imports. A weak currency raises the cost of living of residents who must buy imports - a common feature for nations that import oil, for example. There is a necessary balancing act between export competitiveness and consumer price inflation, regulated often through exchange rate manipulation. Some of the Euro zone nations are learning the painful effects of locking themselves into one currency and losing the ability to use exchange rates to maintain export competitiveness.

The monetary expansions of the past ( done to re-inflate the world economy when it met a crunch - thank you Greenspan and successors) have flooded the world with currency. That currency has expanded speculation portfolios to the extent that the volume of currency sloshing around in search of returns or safety can quickly overwhelm a country's financial system and trade relations (competitiveness impaired, artificial investment bubbles, sudden debt crises when money is withdrawn, etc.).

The international trade and financial systems have made most countries relatively defenceless against trade and, more critically, capital flows. Vast sums can flow in or out of a country and its currencies almost instantaneously via computer clicks. Huge profits and losses can be made betting on exchange rate fluctuations, and on manipulating those exchange rates. ZIRP and NIRP are now regularly employed, ostensibly to dissuade residents from hoarding cash rather than adding to monetary velocity by spending, but ZIRP and NIRP are also used to dissuade speculators from buying a country's currency and hence raising its exchange rate.

Traditional stores of value and media of exchange among central banks - precious metals- have been debased through price manipulation in paper markets.

The strategies that seem unique and strange, and contrary to tradition - rampant money printing, the monetizing of debt through central banks buying government bonds, ZIRP, NIRP, and the suppression of precious metal prices, are the necessary strategies of a new monetary system set up to cope with the problems arising from monetary excesses of the past.
They are the new normal. By disabusing the public of the notion that currency should be a stable store of value, that saving is a virtue, and that money borrowers should pay a reasonable rent on the money borrowed, the monetary authorities are conditioning the public to the new normal. In the paradigm of Modern Monetary Theory, currency creation can continue to infinity without destructive inflation since interest rates and expectation of return on lent money can be maintained at or near Zero. Any interest rate significantly above zero will crash the system, so do not expect interest rate increases except as a short-term emergency strategy to counter a fall in the exchange rate of a currency.

Necessity is the mother of invention, and the necessity of coping with overwhelming debt and unfunded liabilities has led us to the invention of Modern Monetary Theory. Add to this the new rule of bank bail-ins, the rule that bank deposits are part of a bank's capital, and the pledging of the public purse to bail out bank losses. This is the public/government debt side of the strategy. For those with large sums of currency who wish to continue to speculate, there are the stock and commodities markets, and the casino is open for derivatives bets. To accomodate the speculators, we have seen the insulation of Wall Street from criminal liability for fraud, the repeal of Glass Steagall, the weakening of Dodd Frank, the delay of the Volker Rule, the use of the public purse to bail out Wall Street losses in 2008, and the recent pledging of the public purse to cover Wall Street losses from any future derivative bets losses - all in the CRomnibus bill.

Welcome to the New Normal. We shall see how long it lasts.

http://www.zerohedge.com/news/2014-12-21/global-monetary-reset-under-way
 

EO 11110

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going to the credit union today -- to exchange frn for a mix of sdr and amero

:cool:
 

Fanakapan

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Inflation is an Unavoidable by-product of a Growing economy ?

I dont know what the latest figure for the USA is, but here a week or so ago the rate was posted at 1%, given that they probably bigged that figure up a bit, its astounding that the governing class still insist that a Recovery is under way :)

With the Oil price not showing upwards movement, and the reductions showing up at he pumps, its likely that next months figure will be even lower ?

Likely we're already in an Actual deflation gig, so all things being equal, that should mean the burden of national deficits and debts should become heavier while standing still ?
 

Ahillock

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Inflation is an Unavoidable by-product of a Growing economy ?

I dont know what the latest figure for the USA is, but here a week or so ago the rate was posted at 1%, given that they probably bigged that figure up a bit, its astounding that the governing class still insist that a Recovery is under way :)

With the Oil price not showing upwards movement, and the reductions showing up at he pumps, its likely that next months figure will be even lower ?

Likely we're already in an Actual deflation gig, so all things being equal, that should mean the burden of national deficits and debts should become heavier while standing still ?

There is might a drop in price of fuel at the moment, but haven't seen it in other necessities like butter, beef, bread, milk...etc. There is a difference in deflation of credit/debt vs. necessities. Can still have inflation for things your need while credit/debt implodes and goes into deflation.
 

Argent Dragon

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Here's comes the mighty SDR Basket !!!

http://philosophyofmetrics.com/2014/12/17/the-sdr-purpose-of-brics/

The theory that the BRICS economies are moving away from the USD is factual, but only towards the multilateral framework of the SDR, as developed by the central banks themselves and the global institutions. Though countries such as Russia and China may use gold to support their currencies in the interim, it is more likely that gold will become part of the SDR basket composition next July, along with the Chinese renminbi, and possibly the Canadian and Australian dollars.
It is heartrending that so many are losing and will continue to lose as the transition continues. Everything from pension funds, real estate, and possibly even continued devaluations in gold and silver, at least in the short terms, will be bombarded by the liquidity squeeze taking place.
 

917601

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" The key is the move to zero interest rates...."

The article quote is interesting, but how will Russia fare with 17 percent interest rates they are paying?
 

Hope+Change

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It is heartrending that so many are losing and will continue to lose as the transition continues. Everything from pension funds, real estate, and possibly even continued devaluations in gold and silver, at least in the short terms, will be bombarded by the liquidity squeeze taking place.

But the bankers and financial institutions will win, of course. :musicus: