Jul 262020
 
 July 26, 2020  Posted by at 6:27 pm Finance Tagged with: , , , , , , , , , , , , ,


Elaine de Kooning Fairfield Porter #1 1954

 

 

It won’t come as a surprise to anyone that the first half of 2020 has brought, among many other things, renewed calls for the demise of the US dollar. It’s been pretty much a non-stop call for over a decade now, and longer. But this time, like all previous ones, I’m thinking: I don’t see it. I guess my first question is always: please explain why the dollar would collapse before the euro does.

For one thing, the dollar would have to collapse/default against one or more “entities”. The dollar is not like one of those highrises that collapse upon themselves. It will have to default or collapse against something(s) else. Since it is the world reserve currency, that means there would have to be a replacement reserve currency. Yes, that could also be for example gold or SDR’s, or even a basket of currencies, and something like that may happen eventually, but it doesn’t appear in the cards in the short run.

There are really only two candidates for the role, and neither looks at all fit to play it. The euro may have some ambitions in that direction, but it has far too many problems still. The yuan/renminbi certainly has such ambitions, but the Communist party refuses to let it get on stage to show what it’s got. As I recently wrote:

 

The main sticking point for Beijing is a conundrum it cannot solve. The CCP wants to have BOTH a global currency AND total control over that currency. It will have to choose between the two, and cannot make up its mind. So it pretends it doesn’t have to choose. Sure, there has been some advancement for the yuan, but I bet most of that is on the back of the Belt and Road (BRI), and that will turn out to be one of the main victims of the coronavirus. The BRI is China’s very clever way of exporting its overproduction, but potential buyers have other things on their mind today.


Meanwhile, even with that, the yuan is used in only 1.8% of cross-currency payments. [..] The sudden, and rushed, take-over of Hong Kong with the new security law will not help China’s plans to be accepted internationally. [..] The world’s large investors will not put their money into something that Xi Jinping can declare devalued by 50% on a rainy morning when he sees fit. He will have to cede that kind of control.

The euro has made some gains vs the USD recently, going from 1.07 to 1.16 or so, but that means very little once you look at the broader picture. Moreover, the reason the financial press provides for -much of- those gains, which is that the EU supposedly showed “unity” in its recent Recovery Fund talks, is bollocks.

If it showed one thing, it was a lack of unity. That’s why these were the longest talks they ever had. And if this had not been Angela Merkel’s last hurrah, they might not have agreed at all. They paid off the Frugal Four to the tune of hundreds of millions, and that’s how they got a deal. Horse traders.

A simple screenshot from Bloomberg of the USD vs EUR over the last five years makes clear why the recent changes are no big deal. (All BBG screenshots are from July 24 just before 10 AM EDT and all cover a 5 year period.)

 

 

A reserve currency has two roles: being the currency that most international trade is conducted in, and -closely related- being the currency that countries hold most as foreign exchange (FX) reserves. After WWII, the US dollar became the most important currency for trade more or less by default, a position that it greatly strengthened with the petrodollar.

A 2015 SWIFT paper provides details about the US dollar’s share of international trade:

The US dollar prevails as the dominant international trade currency, with a 51.9% share of the value of international currency usage in 2014. The euro is second, with a 30.5% share of the total value. The British pound is third, with a 5.4% share of the total value, followed by Asian currencies such as the Japanese yen and the Chinese yuan.

That’s from five years ago, but things won’t have changed much. The system is complex and inert, it has a very strong resistance against large and sudden changes. (Do note that the euro’s share of international trade is substantially skewed because it includes payments between countries that use the euro as their currency, plus those EU countries that don’t -yet-). Single market, international trade.

And then there’s the dollar’s FX role.

In September 2019, Eswar Prasad at Brookings reported that the dollar’s share of global FX reserves remains around 65%.

The drop from 66 percent in 2015 to 62 percent in 2018, is probably a statistical artifact related to changes in the reporting of reserves. Compared with 2007, however, the dollar’s share of global FX reserves has declined by 2 percentage points while the euro’s share is down 6 percentage points. Over this period, the Japanese yen’s share has risen by 2 percentage points, while other less prominent reserve currencies have increased their total share by 4 percentage points. The renminbi, which was not an official reserve currency in 2007, now accounts for 2 percent of global FX reserves. [..] .. the euro has stumbled, the renminbi has stalled, and dollar supremacy remains unchallenged.

[..] In July 2019, China’s total official reserve assets amounted to just over $3.2 trillion, of which $3.1 trillion (97 percent of the total) was held in the form of FX reserves. Gold holdings amounted to about $89 billion [..] Coming amid rising trade tensions with the U.S., the 5 percent increase in China’s gold stock and the 24 percent increase in the value of its official gold holdings during 2019 have been interpreted as a sign of China’s attempting to diversify its reserve holdings away from U.S. dollars.

If this interpretation was indeed correct, China has a long way to go. Gold now accounts for 3 percent of China’s gross international reserves. From a global financial market perspective, and especially relative to its overall international reserves, the $18 billion increase in the value of China’s gold reserves during 2019 is trivial; it barely registers as a shift in the composition of China’s overall reserves.

Assuming that China still holds 58 percent of its FX reserves in dollar-denominated assets, the value of those assets in July 2019 was $1.8 trillion. So, the value of its gold reserves, $94 billion, is a mere one twentieth of that of China’s dollar-denominated reserves.

With the euro and yuan out of the way as potential reserve currency candidates, we can take a look at gold. Senior commenter Dr.D at the Automatic Earth recently wrote: “As advertised, the US$ is defaulting. What? Where? US$ has been cut in half compared to Silver in 3 months. US$ has been cut in half compared to BTC in 3 months. US$ has been cut in half compared to Gold in 4 years.

Like many people talking about a USD demise, perhaps that’s too much of a dollar-centric view and conclusion. Surely gold and silver can rise vs the USD without announcing an imminent collapse of the latter. And since precious metals tend to go up in times of uncertainty, and COVID has brought shovels full of just that, you would expect them to rise.

Therefore you would have to also look at how they do vs for example the euro, before concluding anything. Note: I didn’t include Bitcoin because it’s too new and volatile. Makes me think of the Lindy Effect, often cited by Nassim Taleb, the idea that the older something is, the longer it’s likely to be around in the future.

Here are a few more Bloomberg screenshots. And yes, gold has done well vs the USD in, say, the past two years, no doubt.

 

 

But gold has pretty much followed the exact same pattern vs the euro:

 

 

Silver has done even better, more recently, vs the USD, though compared to where it was in 2016 it’s not that big a step (barely more than 10%):

 

 

And the pattern of silver vs the euro is so similar it’s almost eery.

 

 

I don’t see anything there that would make me think the dollar is collapsing, no more than the euro is. What I see is gold and silver rising. People move into precious metals, perceived as safe havens; they always do when the world is in turmoil. And don’t forget there are trillions in additional recent central bank money sloshing around that have to move somewhere.

As for the changes of the USD vs the euro: we’ve already seen that they are not exceptional. Losing a few percent vs the euro will not collapse the dollar.

Also, there’s something missing in the discussion as far as I’ve seen: the option that it’s the US itself that wants a lower dollar at this point in time, and actively works to get it lower. A strong dollar works for a strong economy, but not for one weakened by a pandemic and an acrimonious political climate.

But the US has borrowed so much money!, you say. Yes, but so have Europe, and Japan, and China, everyone has who could.

 

A little more about gold, since some are clamoring for a return to the gold standard. Which is not likely, because too many parties would resist, either for ideological or practical reasons. But say you would consider it, then you would as one of the first things you do, look at gold reserves. Here are the top ten gold holding countries per March 2020, as assembled by TradingEconomics.com:

 

 

Note: Britain is not there, because “Between 1999 and 2002 the Treasury sold 401 tonnes of gold – out of its 715-tonne holding – at an average price of $275 an ounce, generating about $3.5bn during the period.” (BBC). Gold is at $1,900 today. Nuff said.

The US gold reserves are so large it would appear to give them an unfair advantage if a gold standard were considered. Same as they have in the current set-up. Then again, if you insert population numbers into the equation, Germany, Italy, Switzerland, even the Netherlands, have more in relative terms. Question is: where does that leave all the others?

Long story short: I don’t see a US dollar default or collapse in the near future. But by all means enlighten me.

 

 

 

 

We try to run the Automatic Earth on donations. Since ad revenue has collapsed, your support is now an integral part of the interaction you have with us.

Thank you.

 

 

It’s very bad luck to draw the line
On the night before the world ends
We can draw the line some other time

X – Some other time

 

 

Support the Automatic Earth in virustime.

 

Home Forums What? Default? Where? Dollar?

This topic contains 14 replies, has 9 voices, and was last updated by  palloy 3 months ago.

Viewing 15 posts - 1 through 15 (of 15 total)
  • Author
    Posts
  • #61507

    Elaine de Kooning Fairfield Porter #1 1954     It won’t come as a surprise to anyone that the first half of 2020 has brought, among many oth
    [See the full post at: What? Default? Where? Dollar?]

    #61514

    John Day
    Participant

    What if the American political system involutes and freezes. Who gets to be “Random” Guaido and who gets to be Nicolas Madura, for the Bank of England holding the gold?
    http://www.johndayblog.com/2020/07/cooperative-survival.html

    The tide will begin to turn when we give up on competing social orthodoxies, to work together for practical necessity.
    Working together for common good, cooperation, is our most successful human trait over the eons.
    In times of plenty, societies may be driven down other trails, but at the end of any such historical experiment, when the support system for the society fails, people either cooperate to find solutions, or slaughter each other,,, eventually followed by survivors cooperating to find solutions.

    Small Farm Future: Business-as-Usual-Porn; We Need to Talk About Collapse
    I want to imagine myself metaphorically out on the ice with Inuit hunters as Hugh Brody was, with no food, no game in evidence, and many days journey from safety, with only a tired dog team, my knowledge of the terrain, my hunting skills and my fortitude in my favour.
    Of course, in reality I’m not out on the ice but on a small farm near the edge of a small town in a small country that’s thoroughly imbued with the culture of global capitalism. I can try to imagine a cultural awakening fit for my time and place, but to write it down on the page will make it thinner and more fugitive than it needs to be in practice. The words I’d write on the page would probably include things like autonomy, self-reliance, community, land, skill, care, craft, work, health, nature, play, creation, love and argument. You can write those words for most cultures. But I think they’ll soon mean different things in our culture than they do now. The trick is going to be building out quickly from the place where we now are, creating culture in practice, but letting go of a lot that we now take for granted, or insist upon. We need to build a new culture that’s calmly open and alive to the possibilities and dangers of the present and the journey ahead, not angrily insistent upon the virtues of the path that took us to where we now stand. So I don’t think it’s worth spending too much time debating on paper (or online) the detailed shape and content of that new culture. I think it’s better to shape it in practice, by doing what we can as peacemakers, storytellers, educators, healers or agents of the practical arts to breathe local life into it. But I do think it’s worth spending time debating the political and historical circumstances in which that shaping can take off and propagate.

    Business-as-usual porn – or, We need to talk about collapse

    Charles Hugh Smith, Why the Unraveling Will Accelerate
    Sclerotic, hidebound institutions optimized for linear stability and permanent growth are simply not designed to adapt to non-linear change and disruption of permanent growth. Systems stripped of buffers are fragile, systems stripped of feedback are fragile, systems that optimize doing more of what’s failed spectacularly are fragile, systems that are little more than fractals of incompetence are fragile, systems that rely on the artifice of denial and fantasy are fragile.
    Fragile systems break. This is why the unraveling is accelerating.
    http://charleshughsmith.blogspot.com/2020/07/why-unraveling-will-accelerate.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+google%2FRzFQ+%28oftwominds%29

    A Soviet citizen, imprisoned for his intellectual innovation, described the break-up of the USSR, in accurate detail, including regions and sequences, 30 years before it took place. His main failure was that he laid out a 24 year timeline. He died in a car crash in a storm.
    Surprisingly, it turns out that his investigations and insights are transferable to modern day America!
    Where is the breaking point? How long can a political system seek to remake itself before triggering one of two reactions—a devastating backlash from those most threatened by change or a realization by the change makers that their goals can no longer be realized within the institutions and ideologies of the present order? Here, Amalrik warned, great powers’ proclivity for self-delusion and self-isolation puts them at a particular disadvantage. They set themselves apart from the world, learning little from the accumulated stock of human experience. They imagine themselves immune to the ills affecting other places and systems. This same predisposition might trickle down through society. The various social strata could come to feel isolated from their regime and separated from one another. ​Thanks for this, too , Charles.​
    https://www.foreignaffairs.com/articles/russia-fsu/2020-06-30/how-great-power-falls-apart

    ​We Are On Our Own In The Post COVID World, Chris Martenson (maybe even sooner, John)
    This chart says that the very highest income earners have a lower effective tax rate than anybody else in the nation. Billionaire Warren Buffett famously pays a lower rate than his secretary. Goldman Sachs bankers are taxed more favorably than their Uber drivers. Again, this isn’t happening by accident.

    And it reveals that, despite the fiction of fairness and freedom, America’s true values and priorities are aimed at funneling more and more of its wealth to in the pockets of an elite few.
    ​https://www.peakprosperity.com/we-are-on-our-own-in-the-post-covid-world/

    ​And to further clarify (though “civil war’ remains completely undefined)
    In an unpublished paper submitted for peer review, Professor Goldstone, who is a sociologist, and Peter Turchin, an expert on the mathematical modelling of historical societies, have concluded that the US is “headed for another civil war”.
    Political Stress and Well-being indices for the United States, 1780-2020
    ​https://www.abc.net.au/triplej/programs/hack/model-predicting-united-states-disorder-now-points-to-civil-war/12365280

    #61515

    VietnamVet
    Participant

    So far, as long as you have dollars and are prudent, you will survive the pandemic. But the Mandate of Heaven has been withdrawn from the West.

    Both the Euro and the US dollar have problems. A significant amount of goods sold in these blocs are manufactured in China. The Obama Administration restarted the Cold War with Russia. The Trump Administration is desperately trying to start a Cold War where Tim Cook makes his iPhones. Boeing is dead in the water if it can’t sell airliners to China. Intel is on the brink of having to outsource its production to Asia since it has not been able to manufacture chips below 14nm. No wonder the globalists want Donald Trump gone. Yet, this is best case speculation. If the USA does not control the coronavirus pandemic the future will be even worse. China will lose a lot of its markets but it still can import raw commodities and make things people need and is fighting the virus successfully.

    Besides the loss of industry, the dollar has two other problems. First, the federal government has failed. The coronavirus is killing essential workers. The Elite have bet everything on a vaccine next year. There is no national public health programs in place to test, trace or isolate the infected which would allow reopening of schools and workplaces now or next year in case there is no vaccine for the coronavirus like HIV or the common cold.

    Second, the unrest will continue. A 90% 20-year-old today in the American Pacific Northwest has no chance of getting a good paying job that would support a family like their Great Grandparents had. A long time ago I had to drive cross country to get a low-rung technocrat’s job with the extra points given for being a Veteran. Today the kids are stuck in the basement, drugged to keep calm. The largest business in Oregon is Nike. The financiers and designers are in the States but all of the shoes are made overseas. The protesters have nothing to lose and a nation to gain.

    Money is a reflection of good government, resources, skills and labor. The US dollar has lost most of its support. The trillions of digital dollars transferred to the wealthy are dependent on Eastern Seaboard’s electricity staying turned on.

    #61516

    Patricia
    Participant

    Why does there have to be a reserve currency particularly when that currency is used as a weapon as the US$ is now? If China is using the Yuan to build the BRI or as a way to get rid of its US gilts then if those countries who, we say, are getting into debt to China only repay that so called debt in their own currency there is no problem. It all depends on what the contract says. China does not follow our rules In so many ways so why should we expect them to follow our economic rules.

    #61517

    Doc Robinson
    Participant

    Return to the gold standard?

    Wikipedia data indicates that the total amount of gold that’s been mined in human history amounts to almost 1 ounce of gold per person in the world today.

    The US gold reserves of 8134 tonnes is equivalent to almost 1 ounce of gold per person in the US today.

    If the current US money supply, currently $18 trillion (?), is to be totally backed by the US gold reserves, this implies a gold value of around $70,000 per ounce (or more).

    The current price of gold jumped up to around $1,920 this past week.

    “An estimated total of 174,100 tonnes of gold have been mined in human history, according to GFMS as of 2012. This is roughly equivalent to 5.6 billion troy ounces… Since the 1950s, annual gold output growth has approximately kept pace with world population growth (i.e. a doubling in this period)although it has lagged behind world economic growth (approximately 8-fold increase since the 1950s…)”

    Wikipedia

    #61518

    palloy
    Participant

    > Long story short: I don’t see a US dollar default or collapse in the near future. But by all means enlighten me.

    Numerous heavily-armed “NFAC” branches pop up all over the place, and corresponding “Three Percenters” branches are created to face them. The Police thugs don’t even try to keep the two sides apart, so battles break out everywhere between them, and the US Civil War 2 begins. Protests and riots, looting and burning run rampant, with the local population evacuating to camps in the countryside where all catch Covid-19 due to the lack of social distancing, good hygiene and medical services.

    The FX market in New York stops working because all the IT sys-ops have evacuated, and physical Gold goes thru the roof because it can’t be delivered in the chaos. The Feds support of small fracking corps with no business plan stops. They declare Chapter 11 but no one will buy them. The truth about Peak Oil being real gets out and Exxon and all the oil majors go bust overnight.

    A nuclear power plant on the Texan coast gets hit by a hurricane and floods and suffers a meltdown. In the ensuing muddle, all nukes are shutdown pending safety audits. The whole electricity system suffers a cascading failure, and the lights go out everywhere. And the computers that run the telephone system, and the internet. The banks are forced to close. All retail trade stops because of the insecurity and the inability to order further stock or pay for it. The water treatment centers, and the reticulation systems, and the sewerage systems stop.

    Systemic failures cascade in the US, and the rest of the world sets up a new SWIFT system using a new reserve currency to buy Saudi and Russian oil and gas.

    #61520

    V. Arnold
    Participant

    …and the rest of the world sets up a new SWIFT system using a new reserve currency to buy Saudi and Russian oil and gas.

    I would suggest you do not understand what, in fact, a reserve currency is…
    And Russia already has a replacement for the SWIFT system:
    From Wikipedia, the free encyclopedia
    Jump to navigationJump to search
    SPFS (Russian: Система передачи финансовых сообщений, lit. ‘System for Transfer of Financial Messages’) is a Russian equivalent of the SWIFT financial transfer system, developed by the Central Bank of Russia.[1] The system has been in development since 2014, after the United States government threatened to disconnect Russia from the SWIFT system.[2]

    Further; the U.S. has very effectively weaponized the U.S. $
    …but then, I’m being redundant; Ilargi wrote an excellent explanation already…above^^^^

    #61522

    palloy
    Participant

    SPFS has only been implemented for Russian banks, not the whole world’s banks. It has been in development for so long because it doesn’t work properly. China has been working on its own SWIFT system for an unreasonably long time too. Perhaps there is another reason why it is not being implemented, like the US threatening WW3 if it is started up. SWIFT is for managing the banking paperwork, all costed in US Dollars, so you still need a new reserve currency. Gold, silver, oil, Matobili Gumbo Beads and Yuan would all do, you just have to have the value converted into all national currencies before you start.

    I should just mention that Saudi Arabia is the spiritual home of Wahhabism, which the US has been fighting in Afghanistan, Iraq, Syria, Libya, etc for the last two decades. The only reason the Saudis are still selling oil in USDs is because they are very weak militarily. One mistake and they are gone, and the system will change.

    #61523

    V. Arnold
    Participant

    …all costed in US Dollars, so you still need a new reserve currency. Gold, silver, oil, Matobili Gumbo Beads and Yuan would all do, you just have to have the value converted into all national currencies before you start.

    The SCO has that covered; and it is operational, if not yet widely in use…
    I posit that, in the not too distant future (not decades); the U.S.$ will remain the world reserve currency…
    But, there will be so many work-arounds; TWRC will be more symbol, gold will and is now, one of the work-arounds the SCO works with. All its transactions are convertable to gold, regardless the currencies used…
    Gold here is priced in Thai baht; 1 baht = 14.710grams
    Thai gold is 96.5%; that price is adjusted for that percent.
    I digress; if I go to Lao the baht coverts to keet; ditto Burma/Cambodia…

    #61531

    palloy
    Participant

    Ilargi > I don’t see a US dollar default or collapse in the near future. But by all means enlighten me.

    So I gave 3 scenarios showing how the USD might not even last the week. All are very possible, even likely. The system is extremely fragile at the moment, and the President is weak and out of touch with the population and reality. Collapse is LOOMING right now.

    To which you (VA) said “I posit that … the U.S.$ will remain the world reserve currency”. How many people feel comforted by that, do you think ?!

    #61533

    palloy
    Participant

    Kitco has Gold at $1,938/oz – a 4,000 year old record.
    USD Index is at 93.81 – 8.2% down from May 12.
    The markets are fundamentally sound.

    #61537

    Arttua
    Participant

    Let us not forget that the war on Lybia and Iraq had a lot to do with their avoidence of the us$.

    #61539

    V. Arnold
    Participant

    To which you (VA) said “I posit that … the U.S.$ will remain the world reserve currency”.

    Actually, that’s not quite correct. It’s totally out of context. The actual thing I said was:

    I posit that, in the not too distant future (not decades); the U.S.$ will remain the world reserve currency…
    But, there will be so many work-arounds; TWRC will be more symbol, gold will and is now, one of the work-arounds the SCO works with.

    There, fixed it…

    Arttua
    Let us not forget that the war on Lybia and Iraq had a lot to do with their avoidence of the us$.

    Yep

    #61582

    Dr. D
    Participant

    Late to the party. And also the US is going to add $2T deficit and double it every six months with no consequences? Forever? That seems as least as unreasonable.

    We were never going to pay for exactly that reason, therefore, it was going to end, as was always known and therefore planned. But what is a collapse? Something fast, or so it suggests, in reality Russia’s collapse took decades. Rome’s collapse took centuries, a millennia perhaps. The Fed, the money-printer, owner of the banks, is now in the People’s Treasury. The gold-standard candidate is in the wings, waiting to be appointed as Fed chair and adviser.

    So since the collapse, and resulting mass death, end of Constitution is off, they are going to rotate. How? As they said, Russian and other systems already exist. They can be leaned on harder than now if they wish. Trade shrinks, reducing the demand and pressure. Britain or elsewhere can lean more heavily on home currencies, shaving a few more percent. China owns 3%…but that’s just of gold, they have warehouses of silver and copper. They are also certainly lying: they OFFICIALLY own 3%, but the CCP owns all and has encouraged dozens of proxies to buy on their behalf, along with the public. But let’s be conservative: they own 6%. Even a 50% backing would be extravagant: the US$ stopped dropping at 10% in the 70’s (and thus $880/oz price). So China has 6% and needs it to reach 60%. Gold has to rise 10x. Or gold has to rise 5x and the other stepping stones, silver, copper, domestic currency, gold-trade-notes, have to make up 5x. That sounds incredibly easy to me.

    $10,000 gold, half of what it probably should be (vs M3), US and EU fall vs gold et al at the same time. No one notices, just like last time, because Tesla goes up 5x too. It’s just “markets rising” not US$ and other paper promises falling.

    After, you find we’ve rotated to a multi-polar world and multi-polar currencies. 50% US$ and dropping very slowly, 10% Euros and dropping, 10% cryptos, 10% metals, 10% new-form contracts, pretending to be gold-backed, etc. Then the proportions continue to drift as nation states de-centralize and shrink in power.

    But this is how they’ve always done it. At least since they stopped stealing from the Jews, and later the Monasteries. They need collateral on their books: they tell Sotheby’s to value their Monet at 100x what it was yesterday, anyone who protests gets axed. You just saw that in fantasy valuation of MBS, the complete erasure of FASB, and later the FASAB: accounting within government. In this case, the worthless asset they will claim has higher value is gold. We probably own half what we claim — no one can prove it. But we, and Mexico, and Canada, also own the world’s mines that can produced 5x the missing 8k tonnes, given time. The world knows this. By the time they get their lawsuits going, we’d have the new-fake gold in the vault, double-hypothocated. That’s how it’s done, that’s how it’s always been done.

    Last last time, FDR doubled gold vs US$. Last last last time, they valued silver to the new cross of gold standard, sez Jennings Bryant, the Cowardly Lion. Last last last last time, they valued silver vs gold vs paper vs speculative greenbacks, vs frontier property bubble, my head spins. Before that, classic: Britain pillaged every colonist for coin, and the bubble was paper Continentals. The 1789 government rotated from Continentals, consolidated debts paid in Spanish silver dollars.

    And this time no one will rotate, everything will go on forever, the US will always be the same and nothing will change? It’s the End of History, like Fukuyama said to Dick Cheney. Yes, we see how that worked out.

    A “Crash” depends on how fast you feel “fast” is. The 70’s took from 1963 (Vietnam, Silver) to 1980 (Gold high, reset on total-debt-deficit basis and market rigging under Reagan) It might be a “Crash” looking back, but it’s a rotation in real-time, with years and years open to position and trade in and out.

    The EU has gold too. It’s one of the bases of the Euro (although both lying, and in dispute). The Euro could, and would, have strengthened on that basis, had the US dropped after 2001 as they imagined, (Bush not attempting planetary takeover) them taking over the banking wheel. London hedged both sides. But their incredible fraud, infighting, and gold claims have greatly weakened that replacement Euro. Nevertheless, the structure exists for it to strengthen if gold rises, just like the USD. Strengthen against what? Their debts, perhaps? Imported wheat? It’s a large machine. It contains multitudes. It’s more a debt vs collateral vs confidence vs rigging power model.

    #61608

    palloy
    Participant

    > A “Crash” depends on how fast you feel “fast” is.

    So let’s agree on a definition of “crash”. My favourite is:
    “… collapse happens when a system crosses a tipping point and is driven by negative feedbacks into a new and structurally and qualitatively different state, one with a different arrangement between parts and a fall in complexity. ” – Korowicz ( see http://www.feasta.org/wp-content/uploads/2012/06/Trade-Off1.pdf ).

    Obviously this change is going to be resisted by USG/Fed/banks/wealthy, who want shrinkage rather than collapse, “same system” rather than “different arrangements”. The only problem is that markets can and do move at electronic speeds under automatic algorithmic control, so that before anyone realizes what’s happening, it has already happened. This is how the stock market can be crashed by the players themselves, even when it is to their own detriment.

    The bankruptcies in the shale oil sector are piling up now, and the sharks are circling the corpses:
    https://www.bloomberg.com/news/articles/2020-07-22/shale-s-bust-shows-basis-of-boom-debt-debt-and-debt-quicktake
    1. How bad is it?

    More than 230 North American oil and gas producers, owing at least $152 billion in debt, have filed for bankruptcy since the beginning of 2015, according to the latest report from law firm Haynes & Boone. In the second quarter alone, companies that went bankrupt had total debts of $29 billion. The restructurings are showing no signs of letting up, as June tied for the busiest month on record with seven oil and gas bankruptcies, according to data compiled by Bloomberg. That month, the shale bust marked a grim milestone by claiming the pioneer of America’s drilling renaissance, Chesapeake Energy Corp. For other parts of the shale supply chain, 2020 is also on pace to be the biggest year of bankruptcies in terms of debt owed.

    It isn’t going to take a genius to work out that whoever buys up these loss-making buinesses is only going to make a further loss, and once the realization gets out, no one will want to touch them. Their value goes instantly to zero, no bids, no manageable shrinkage. Suppose that it gets out that the banks have been lending to investors based on a broken business model, which they surely know, and that this is on a nod from the Fed that they won’t actually be held accountable for this.

    When Ilargi says it won’t happen, and Trump’s brilliant financial skills will manage the situation, I am shocked.

Viewing 15 posts - 1 through 15 (of 15 total)

You must be logged in to reply to this topic.