Sunday, June 15, 2014

The big 3 are screwing the rest over

Some info and thoughts as I read James Rickards' Death of Money:

The USD, JPY and EURO make up 65% of allocated world reserve currencies (half this number if you include unallocated reserves). With the 3 central banks printing these currencies like crazy, they are screwing up the other nations, transferring wealth from creditors to themselves.

The rest of the world don't like it. The BRICS, SCO, and GCC want to set up alternative monetary systems. They have been accumulating gold furiously.

If the IMF's SDR becomes the new reserve currency, it will be an inflationary currency par excellence. The source of inflation will be so obscure. The smart ones will start to blame inflation on sovereign central banks, but these central banks will simply point their fingers to the IMF. Owned by no nation, untouchable.

The BRICS, SCO and GCC are not too keen on tagging along with the IMF system unless they get more say. This could result in a Bretton-Woods style monetary system, where gold is once again reestablished as an anchor.

In any case, the end of the USD standard is drawing near. The 20th century witnessed 3 changes in the world monetary system. Each time, gold is revalued upwards massively to account for devalued currencies. The new change in the world monetary system will be the first one for the 21st century. Lots of investors will lose money . Lots of investors will gain money too.

Paul Volcker, Bretton Woods, Gold standard

Former Federal Reserve chairman Paul Volcker has hinted at a new Bretton Woods to prevent "destructive financial crisis."

Volcker said in his Bretton Woods speech this past May:

"Was the exorbitant privilege of the dollar as a reserve currency also a dangerous temptation to procrastinate - an impediment to timely policy adjustments, risking eventual breakdown?"
A new Bretton Woods conference? We are long ways from that. But surely events have raised, whether we want to admit it or not, some fundamental questions that have been ignored for decades.

New York Times on Latvia in 2013

New York Times on Latvia in 2013: 

When a credit-fueled economic boom turned to bust in this tiny Baltic nation in 2008, Didzis Krumins, who ran a small architectural company, fired his staff... and then shut down the business. He watched in dismay as Latvia's misery deepened under a harsh austerity drive that scythed wages, jobs and state financing for schools and hospitals. 

But instead of taking to the streets to protest the cuts, Mr. Krumins... bought a tractor and begun hauling wood to heating plants that needed fuel. Then, as Latvia's economy began to pull out of its nose-dive, he returned to architecture and today employs 15 people - five more than he had before.

Real austerity vs fake austerity

Real austerity vs fake austerity.
Economic prudence vs Keynesian-style stimulus.


After the economic collapses in both groups in 2008, GIIPS raised taxes and hardly cut spending (many people were led to believe they have austerity just because the news headlines said so). BELL took drastic austerity measures with govt layoffs and real spending cuts (such as 35% salary cuts for ministers. Now that's austerity!).

Results: GIIPS are still muddling along and more trouble lies ahead. BELL had a longer recession but also a dramatic turnaround and their growths are now the highest in the EU.

Moral of the story: Economic prudence works. Keynesian-style stimulus fails. Keynesianism has a dismal track record over the decades and lack empirical support for its claims, yet it is being taught in schools and followed blindly in the financial world. Let a real recession happen. Cut govt spending with a chainsaw. Take the pain and let the free market work. The economy will restructure and become stronger.

Inflation myth: foreigners cause it

Every notable nation in the world has inflation. Every nation blames it on foreigners. Does kicking foreigners out solve the problem? No! Merely shuffling people around between nations do not kill inflation. 

Inflation is the result of the current world monetary system, which is about 43 years old. Inflation is not caused by people. It is caused by money printing. You shuffle people around the world, but the paper money is still around to bid up prices.

On a side note, expect a change in the world monetary system soon. It has changed 3 times in the 20th century. The first change in the 21st century is not far off into the future.

1400 gold coins VS $30,000

Uncovering 1400 gold coins VS uncovering $30,000 (the values of these coins back then). 
What's the difference?

Couple who found gold in back yard are millions of dollars better off
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