3 Minute Gold News
A Quick Read for Busy People
A synopsis of an interview with Jim Rickards, New York Times bestselling author of The Death of Money and Currency Wars, by Ameera David at RT Boom Bust.
Jim is the Chief Global Strategist for West Shore Funds, editor of Strategic Intelligence, former general counsel for Long Term Capital Management, and a consultant to the U.S. Intelligence community and the U.S. Department of Defense.
Part 2
Topics:
China in the SDR Basket
Death of the Dollar
SDR as Global Reserve Currency
Currency Wars
US Interest Rate Hike
Jim Rickards
November 23, 2015
CHINA IN THE SDR BASKET
All of the elements of the SDR basket have to add up to 100% — it’s a zero sum game.
So, if you throw the yuan in the basket of currencies, then you have to reduce the pound, the euro, the US dollar and the yen by the percentage that you add in the yuan. You get different points of view as to what the percentage the yuan is going to be.
On November 30th the executive of the IMF is approving the inclusion of the Chinese yuan into the basket of currencies making up the SDR.
But they’re going to leave it up to the staff to do a lot of technical study to decide what percentage of the SDR should be comprised of the yuan.
The decision of the percentage will not be announced until March 31, 2016, and then the effective date will be September 30, 2016.
So we’re almost a year away from it being in the basket, although we know it’s coming.
The reason they give such a large amount of time between an announcement in March and an effective date in September is to give large portfolios, the trillion dollar portfolios, time to rebalance.
Jim’s estimate is that the yuan will be about 7 1/2 % of the SDR basket, but Bloomberg has an estimate showing it as high as 15% — so it’s a debate.
Whatever the percentage is, you’ll have to take away that amount from the other currencies.
As the dollar, sterling and yen are reduced it’s going to add downward pressure on those currencies as the large portfolios sell. It will also give a lift to the yuan as people buy it.
There’s going to be this global rebalancing.
DEATH OF THE DOLLAR
This is a slow motion death of the US dollar as the world’s reserve currency.
China is not gong to be a large percentage of global reserves for at least ten years. Just getting the SDR seal of approval is not enough.
You can be a trade currency — you could use trading cards or bottle caps for a trade currency — but being a reserve currency is different.
You have to have a bond market.
What are reserves?
It’s the surplus that a country earns, either through trade or through foreign investment. They take that profit and invest it. So they pick their currencies to invest in, and for that they need a bond market.
The US dollar is the most dominant reserve currency because it has the biggest and most liquid bond market.
It’s going to take China at least ten years to develop a bond market, cross hedge maturity, hedging instruments, repo, dealers, auctions, settlements — all the plumbing.
Jim expects that long before that ten year period is up, there’s going to be a financial panic.
He believes the IMF will have to flood the zone with SDRs, and the SDR is going to step up as a global reserve currency of its own, long before the yuan gets there.
SDR AS GLOBAL RESERVE CURRENCY
The SDR will step up as the world reserve currency and the US dollar will become more of a local currency.
They’ll have dollars in the US for coffee or lunch, but it won’t be the dominant international reserve currency.
That change will be inflationary because the IMF will have to print trillions of SDRs to refliquify the world in a financial panic, and that will be inflationary on the dollar — dollar prices will go up.
When people scream and blame the Fed and Congress for the inflation, the Fed and Congress will just point their fingers and say, “Blame the IMF”.
CURRENCY WARS
The currency wars are alive and well.
The world’s not always in a currency war, but when it is they can last 10, 15 or even 20 years.
This one started in 2010, so it’s stil going on and it’s not a surprise. Jim talked about it in his first book, Currency Wars.
He expects that the next shot will be the devaluation of the Chinese yuan. With the Chinese economy slowing as fast as it is, and the importance to the communists to keep the job machine and the export machine going, they can’t afford to hit stall speed, and they’re going to have to do something.
They’ve been cutting rates and cutting reserve requirements, but cheapening the currency is another way to go.
They’ll do that sooner rather than later, because once they’re in the SDR next September they’re going to have to play by the “rules of the road”.
The time for China to be bad actors is now rather than later when they’ll be more constrained.
It’ll cause a political uproar in the US while the politicians are on the campaign trail.
US INTEREST RATE HIKE
The Fed might raise rates in December. Jim said they wouldn’t in 2015, while other economicsts said they would. They haven’t raised yet this year, and they shouldn’t based on the fundamentals, because the US data is weak. But Jim now believes they might raise them in December.
Jim Rickards can be found on Twitter and at James Rickards Project.
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From the Cariboo Gold Rush Trail
Gold is $1,069.40 US per ounce.
Gold has been freaking out and dropping. I’m not worried as my intent is long term insurance and not short term speculation. It’s insurance for the next financial panic and not an “all in” strategy. It’s a personal belief and I’m not advocating or giving advice on what someone else should do. We all do our own research.
I performed Leonard Cohen’s Hallelujah twice this weekend. Saturday for my dad’s funeral and then Sunday for the 19th Annual Vancouver Eastside Culture Crawl. Legendary bluegrass guitar player, Brian Landry, played for me on Sunday. It’s a very sweet thing to have David Crosby “like” my tweet. Thank you. I have a lovely family and learned about my musical history, we jammed at the “celebration of life”, and it’s so cool to feel part of a larger musical extended family.
Thanks to Warren Murfitt from Murfitt Guitars in Vancouver, Canada. Thanks also to the Eastside Culture Crawl.
My arrangement of Hallelujah goes like this:
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Not Much of a Holiday
words and music Elaine Diane Taylor
© 2015 Intelligentsia Media, Inc. All rights reserved.
SOCAN/ASCAP
Single available on iTunes
The Greek bank holiday and long lines to get a few euros for the day. Debt deals behind closed doors. The media telling us what opinions to have. China building islands in the South China Sea and claiming all the international waves. More dealing to come. More standing in line for those who owe. Who owes? There’s a long line of nations in debt and this is far from done.
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Preparing for the Fall live boutique album is available on iTunes — featuring Wag the Dog, Black Swan Dive, American Pie and Gods of the Copybook Headings.
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Coins and Crowns
words and music Elaine Diane Taylor
© Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Coins and Crowns available on iTunes
Single featured in Episode 1 of Mike Maloney’s documentary series Hidden Secrets of Money.
When a nation leaves the gold standard and sound money, and borrows to go to war, then hunger goes up, hope goes down, anger goes up, then it all goes down.
The Gods of the Copybook Headings
words by Rudyard Kipling and music by Elaine Diane Taylor
©2014 Intelligentsia Media Inc.
SOCAN/ASCAP
from the album Preparing for the Fall available on iTunes
The copybooks of the early 1900s gave us all the wisdom we need. The sayings that were copied are the truths, the gods, of our world. All the empires who followed the gods of the marketplace instead have fallen, and there’s terror and slaughter when the gods of the copybook headings return. The lyrics are by Rudyard Kipling. One of my gurus.
Another Week on Wall Street
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Coins and Crowns available on iTunes
See the bankers wave their Wall Street wands and conjure piles of paper green. Naked short selling is like betting that your neighbour’s house will burn down. But in this scenario it happens to burn down. If the bankers win then we lose the whole world as we know it. I wrote this in 2009, with a lyric “A little grease (Greece) is floating out to sea, and little pigs (Portugal, Italy, Greece and Spain) are bobbing up and down, they’ll send a storm and we’ll see, when the tide goes out who’s naked on the beach“, and it’s coming on now. The world is changing as we know it.
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Nothing on this site is intended as individual investment advice. We’re all watching which way the wind is blowing.
Elaine Diane Taylor 