Jim suggested a big picture topic to write about. Each step forward by the Chinese to make a foothold for the yuan is one step backwards for the grip the dollar has held over the globe. This topic has several nuances to it, let’s take a look from several vantage points. As a spoiler, any “steps back” in today’s fiat currency world are steps toward a break in confidence. Call it deflation or hyperinflation, a break in the confidence of fiat currency will end with many currencies being replaced, this is a major part of your coming “re-set”.
The first and most obvious is we live in a world with an economic and financial pie of a given size at any point in time. Each deal, each transaction and each “platform” that is done or created by the Chinese for using yuan instead of dollars means the size of the of the pie “slices” change. Any increase in the usage of yuan means a smaller slice for the use of dollars. Yes, theoretically the pie gets larger over time and we’ll get to this shortly, I am simply saying here that in a static system, more yuan usage means less dollar usage.
The next logical step is to equate the usage of a country’s currency with “power”. As any currency becomes more popular for usage, the confidence in that country also increases and vice versa. In today’s world (but not for long?), fiat currencies with no backing are free to create. In the case of the dollar since 1971, more usage (via petro-dollar reinvestment) allowed for more “creation” of dollars and thus the power generated from the “privilege” to print. This so far is simple logic and merely a description of how our monetary world works.
China has done many things over the last several years with an eye to moving their currency, the yuan forward. They have purchased massive amounts of gold to be held as reserves, we will very soon find out how much they have accumulated as they announce for their entrance into the SDR. China has also set up two dozen “currency hubs” all over the world in major cities. They have done this to aid in the conversion of local currencies into and out of yuan. Clearly this move will aid and grease the gears for trade done with China. It will also aid in currency movements looking to “buy” yuan if deals are contracted to settle in yuan. In essence, China is simply “making it easy” to purchase and use their currency. They have also set up credit facilities such as the AIIB and new exchanges for gold, the SGEI. China is actively seeking “new customers” and trade partners along the “Old Silk Road” as they can see the writing on the wall …as well they should since they are the ones doing the writing!
If you look at nearly everything China has done in recent years from a financial and economic standpoint, it can be seen they are preparing the yuan to become a “major” and international currency. They have requested the yuan to become part of the IMF’s SDR which gives us an approximate time guideline. Whatever percentage the yuan gains of the SDR pie will come at the expense of the dollar’s piece. The flip side of the coin is the U.S., what exactly has the U.S. done in recent years to “promote” or make it easier to use dollars? This is a simple case of losing market share!
Now, let’s look from a different angle. Any economic (financial) system is either increasing in size or decreasing. It may be increasing at an increasing rate or the rate is slowing. The system may also be decreasing at an increasing rate, or the contraction is slowing. In a fiat system where debt is the underlying asset holding up values and ultimately the currency itself, debt outstanding (growth) by definition MUST increase in the long run and it must grow at an increasing rate. This is an “absolute” because there does not exist the “dollars” today to pay future interest, they simply do not exist …”yet”. The only way they will ever come into creation is by creating more debt or using the electronic printing press. In the words of Richard Russell, “it is either inflate or die!”.
Let us now look at the “die” part. If (when) China makes the yuan convertible and international, this will immediately take “market share” away from the dollar. This is where it gets interesting because there is a major fork in the road, it is called the debate between the “inflationists and the deflationists”. One theory is that any decrease in dollars outstanding (and being used) will cause existing debt to default and create an unending cycle of default. This the deflationists say will actually make “dollars” worth more. The inflationists say this can never happen because the Fed will simply “print” more dollars and thus ruin the value of existing dollars via common hyperinflation.
Let me say this, I disagree with both arguments! First, as for the deflationists, let’s assume (and I do) we have hundreds of trillions in defaults. What, if anything will be left standing of the financial markets? With the derivatives outstanding, which banks exactly will still have their doors open for you to retrieve your now “more valuable dollars”? Will ANY financial institution still be solvent? And going one step further, when this collapse comes, won’t the business climate turn highly negative …which will slow tax receipts to a trickle …and make it impossible for the Treasury and other agencies to make good on their debts and other promises (unless they just conjure up more out of thin air)? Finally, aren’t “dollars” ultimately backed by the “full faith and credit” of the United States”? Aren’t dollars now “used” based on the “confidence” in the U.S. Treasury since they are not convertible into anything else? Flipping to the inflationist side, they say the Fed will simply print more and create hyperinflation. I say they have ALREADY hyperinflated the currency by allowing the system to reach, and pass the “debt saturation” level. They have already put the seeds into the system!
What I believe we will see is what we have always seen as a final result of fiat currencies, a collapse of confidence. Call it what you want, call it a deflationary collapse or call it hyperinflation, the end result will be “confidence” in the U.S. dollar will collapse. It will be shunned in international trade and will take MANY more dollars (if at all) to conduct transactions. What is coming is a “monetary event” triggered by a very human emotion, “fear”. Fear that the dollars you hold will not be accepted when you go to spend them!
To finish, let’s add gold into the equation. We have only seen true “deflation” once in the last 100 years in the U.S.. We entered deflation in the 1930’s and if you listen to Harry Dent, owning dollars was the number one place to have money. This is simply NOT SO. Yes, having dollars was “good”, having dollars in a bank was “not so good” because many banks simply closed their doors and the dollars were lost … the insolvencies occurred BECAUSE of the deflation. Going one step further, FDR devalued the dollar versus gold from $20.67 to $35 per ounce. Please remember, back then dollars did not have value because they “were dollars”, they had value because they were RECEIPTS FOR GOLD. Gold was the asset, gold was “the money”, dollars were the derivative of gold!
As it was in the 1930’s, ever before and ever since, gold is money. Any future “deflation” that occurs will be “against” or IN terms of gold! Ask yourself this, in a financial collapse, “what will be safe”? Will your bank, broker or insurance company be safe, or even still solvent? Will our over indebted government be safe? Will the pieces of paper or digital credits issued by this “safe” government and held by your “safe” institution …really be safe? Or, will gold, which is readily accepted and even HOARDED by the rest of the world be accepted, sought after and thus both liquid AND safe? This is THE most important question and one that will affect the rest of your entire financial life! It’s not that hard of a question, only a little common sense and a small dose of logic will get you there!
Regards, Bill Holter
Bill, the sky has been falling for over six
years. People who have been buying stocks continue
to become exponentially wealthy. Having some gold as
a hedge is fine but, all the doom and gloom can become
exhausting. I have taken stock profits and bought a
home in the mountains and new 4×4’s for the wife and
two daughters. My point is living under a cloud is not
living and I for one will not be frightened by all the
doom and gloom. I appreciate your writing but the message
is getting worn out. I think that’s why there is normalcy
bias in society at large. People are just tuning out the
same old doom and gloom. Just an observation.
no one forces you to read my or anyone else’s work. Would you rather I lie, write what I don’t believe and blow smoke up your ass?
I know you won’t capitulate, but please don’t ever change based on somebody getting tired of your warnings. Who could have predicted “The Creature from Jekyll Island” would take this long to destroy America and our freedoms?
Truth is sublime and noble and it will conquer in the end.
I have always written what I believed to be true and always will, it is not my fault the financial system is mathematically screwed, I wonder what he will be saying after the collapse?
Bill and many others have done a great job trying to help understand the truth of the situation.
The outcome of this kick the can experiment is going to be bad.
Some see this as doom and gloom.
I see it as facing reality.
Yes, many continue to add paper profits while us stackers for the most part appear to be wrong.
What is wrong?
Is being too early wrong?? Is being too late less wrong?
Is choosing to be on the side of safety a mistake?
I for one am thankful that time has allowed me to re-position myself for the long term.
I wake up each morning much more relaxed, must less worried about what do i do when the reset does occur.
Peace of mind is a healthy feeling.
If you have prepared then enjoy life, embrace those you love and be thankful for what you have even if that is little.
I may not have a generous pension…but I do not worry about that pension being unfunded.lol
things will change 180 degrees in an overnight session.
Yes Bill..when the time has arrived there will be no stopping it.
If I can take this liberty…may I suggest that we the readers of your work should be able to conclude for ourselves without being told that what you describe is your opinion of events as you see them.
It is up to us as individuals to determine our level of urgency we apply.
It is up to us to understand that nobody has a date and time stamped ticket to the reset event.
It will arrive when the can kicking is done. It will occur when the powers to be either loose control or give up control.
We are only the audience waiting for the main event to begin.
We should however have enough logic based conclusion reaching ability to realize that we are getting very very close.
Right on, Mike. Your writings exhibit a wisdom not common in the North. You must be from Texas, too. Hahaha.
yes, a “northern Texan”.
1. Why is General Electric try to sell GE Capital?
2. Why is China building islands in the South China Sea?
3. Why has the government computer system been compromised by the Chinese?
4. Why aren’t the manipulators persecuted?
5. Why are our borders wide open?
6. Why won’t Fort Knox be audited?
7. I could go on and on!
8. The answerer is in the letter written by the Orlando Sentinel writer.
bill, here is an article, about an oped in WALL ST. JOUR.
THE COMMENTS are what i am sending about this guy John Hilsthenrath;
By now, most of you have read Jon Hilsenrath’s mindless, tone-deaf, idiotic attempt at humor published by the Wall Street Journal this week. If not, here it is: A Letter to Stingy American Consumers.
What you may not have seen, are the 179 comments published in response to the article. At least 95% of them consist of justifiable crushing criticism toward the cluelessness of this Federal Reserve apparatchik masquerading as a journalist.
While I am strongly against vigilante style violence as a solution to our societal problems, the incredibly frequent calls for him and other “elites” to be strung from lampposts is certainly notable.
People are very angry, and this anger will explode at some point in a very nasty way unless the status quo is discarded.
Here are the top 20 comments from the post: (In highlighting them, I am not endorsing any calls for violence)
yes Allen, it will be a long hot summer.
Well-reasoned piece. You’re last sentence states that “[i]t’s not that hard of a question, only a little common sense and small dose of logic will get you there.” This is so true. Case in point: I handed my son a silver eagle and $20 and asked him which was more valuable. His answer was that the Silver Eagle was more valuable. Feigning a bit of surprise, I then asked him to explain the answer. He looked at me like I was stupid and said “because you can’t print the silver.” He said this without any coaching from me–just using common sense. So you’re right about it not being that hard of a question.
I forgot to mention that my son is only 12 years old and that he doesn’t have any real type of economics background other than most kids his age.
smart kid GB, I’ll bet he has heard a little bit of common sense while running around your house. Kids hear more than they let on!
the thing is this, with only half a brain and your head halfway unscrewed you can still understand “how” this all ends!
I have empathy for Brett Tillis. He has taken precautions and is just worn out by all the doom and gloom. He might try to watch the movie “Noah’ in which Russell Crowe plays Noah. It gives a sight into what may happen now or sometime soon.
Nothing wrong with gloom and doom as long as one understands the underlying reason(s) for it and prepares for the consequences, but not let it consume you. If you go the doctor for your annual check-up and everything is fine, then life goes on. If the doc says you got cancer, well, life goes on but your plans will probably be altered. How one deals with that is the trick. Mental preparedness is just as important as financial preparedness. Living real time through a crisis you previously only read about in history books can be quite daunting for some people.
…LIVE LIKE YOU WERE DY’IN!!!
Read your piece over at JS Mineset. Many of weak commitment and short sightedness, have lost faith these past 8 years. The insanity of the western financial system has lasted alot longer than most would have thought possible.
To me this has been an underestimation of how deep the insanity runs, in the upper financial crust of this corrupt society we find ourselves swimming in! Being of solid conviction and believing in yourself, is the trick to have the staying power to outlast the insanity. That and reading such self evident “common sense” as this article reveals, will see you through.
conviction is easier if you understand the ending.
Looks like all us gold and silver bugs might soon get a piece of that new pie, I just hope the baker hurries up cause this little bug is starving over here.
And for the silver bugs, I believe their slice will justifiably get a whole lot bigger after all is said and done.
And for those holding dollars, you’ll be left eating a sh!t sandwich without the bread.
it will be be very fast when this thing unravels.
….BECAUSE WE ALL ARE… some into eternal life, and some into eternal more of the same- or WORSE…
for some, current circumstances are a walk in the park compared to what’s coming.
Thanks for another valuable update.
As to Brett Tillis above, I’m glad he took some profits and bought a home.
However, what about all those folks that will leave their currency (notice I did not say money) and won’t be able to take any profits when it all falls apart?
What about the folks that have currency in pension plans tied to the stock market and can’t touch them? Bye, bye currency.
If we all knew the timing of the upcoming re-set we could all do like Brett Tillis above, but I think it is best to have real money (gold and silver) and sleep well not having to worry about timing.
I believe Thanksgiving of 2015 will not be happy, but I pray I am wrong.
the problem is, EVERYTHING is based upon debt.
Think of yourself being on a Second WW sub. Your sub has just been rocked by a number of under water explosions.
So far your vessel is still intact but you are noticing a number of small leaks in a few areas.
In one forward compartment there is a more serious leak but you have sealed off the hatch door to that compartment and for now things are safe.
The flooded compartment is DERAVITIVES. The front of the sub is heavy and the sub wants to sink down but you and your crew mates are all ran to the back of the sub trying to balance the weight.(currency printing)
So far you have evaded disaster.
The concern is that one more explosion (financial event) could take the sub down because your engine is dead because the batteries are nearly exhausted.( no further economic tools to avoid the problem)
The sub and your mates are OK for now but you know that at any time one more explosion could cause panic.
You know that you are on borrowed time and you are searching for a method to re-start your engine.
Deep down you know that the sub is doomed but you are just hoping that a miracle occurs.
Do not allow yourself to believe you will escape by sheer luck. Plan your escape.
Bill….If in the near future, the globalists hatch their plan and the markets do not open a Sunday evening starting in Japan, how many days do you feel the markets will be shut down until they have informed/performed the worldwide monetary reset (in whatever form that is)? There will be a lot of worldwide public outcry and they will put bigtime pressure on Gov’ts to re-open the markets…..so it seems they better act fast with their plan so money can flow and the world economies can adapt, function and resume without much disruption to commerce. Your thoughts.
it’s hard (impossible) to say, they may have to try several times to reopen with failure?
Bill, to follow up….from what I’ve read, all EU banks are now allowed to have bail-ins by law…they have made it legal now….as here in the U.S. I believe…..so the U.S. may confiscate depositors deposits over $100,000 by a certain large percentage and that would prevent a Dollar devaluation reset because that deposit confiscation would go towards paying down U.S. debt to support the dollar. They will say it’s your Patriotic duty as an American to support our great country. Just another scenario.
it will only save the banks, it will not stop a reset in any fashion.
Your comment clarifies alot for me that the bank bail-ins are not the total solution but may only be a part of the overall plan if/when they are forced to do it. Thanks.
correct Snoop, this will only be a band aid for the banking system, NOT the “fix”.
IMO one of the most questionable places to have money is some form of govt created (permitted) savings acct. ex: IRA, 401K…One swing of the gavel and they will all be converted to treasuries.
easier and more profitable than confiscating gold.
I think we’ll see lots of these “last ditch” efforts.
There is a need to reset the entire system not just that of any one country like the USA.
We cannot destroy the shift from West to East unless we destroy ourselves as well.
Any politician that continues to play the game of pointing at other countries as the bad guy is simply trying to distract us from the reality.
Without real production there is only the ability to produce a facade of production.
To manufacture a perception is to avoid the reality, only if temporary.
The entire world currency system is ill and the only truthful
measure of repair is to RESET all of it and start over.
It is time to clean the blackboard and begin again.
There is no means of doing this without pain and we must not allow the people responsible for the creation of this mess to control the new system.
Honest rules must be in place and one simple way to keep the system accountable is to tie any new currency to real money. (gold standard)
If it takes 60K gold to back a printed money system then so be it.
I just do not see a new system emerging without a complete cleansing of the old system.
This will be a monumental task and if you think this can occur without much pain and time then you just do not grasp the size and seriousness of the challenge facing us.
It will end with a screeching halt and it will rebuild with a slow painful process.
Many are not mentally prepared for this journey.
Hug the ones you love today.
Another insipid coming debt crisis, that has little to no attention, is the HELOC (home equity line of credit) resets.
Everyone who was using their house as an ATM and took out HELOC’s during the height of the boom 10 years ago, are now starting to see their payments reset.
Most HELOC’s have a 10 year draw period where the payment is roughly interest only. After the draw period ends they convert to a 20 year fixed, where the payment will be close to triple if you have only made interest payments.
This is the next bulge in the housing “Python” to work its way through the system. Those homeowners who were looking to ‘cash’ in on their home equity (mostly the ‘baby boomers’) have seen their equity cushion disappear! These resets will haunt the housing sector for another 3 to 4 years until they clear.
For a farmer one of the worst things is a hail storm only taking out his crop leaving the neighbors setting pretty to bid up everything. At least in a drought everyone’s in the same shape.
Are we in for a local hail storm, or world wide drought?