An excerpt from American economist Jim Rickard's newsletter. Not a pretty scenario, but one of which all should be aware.
The Truth: The US Dollar Will Not Be Overthrown in October
Jim Rickards, Strategist, Strategic Intelligence
Blogs, newsletters, and inboxes are cluttered with dire warnings about an event coming in October 2015.
This event will supposedly overthrow the US dollar as the global
reserve currency and spark a meltdown of the international financial
system.
Nothing of the kind is about to happen. Important and significant
dealings are happening behind the scenes in the international monetary
system. Global elites are meeting in Washington, Beijing, and Lima,
Peru.
They are making decisions that will impact global capital markets in
the years to come. There is a plan underway to solve the global debt
problem by stealing your money through inflation. But elites do not
operate on the ‘big bang’ theory.
They do not announce radical changes overnight. They prefer to make
small moves, year after year, through boring technical changes that few
notice or understand.
The elites have a plan to take your money. Yet they prefer a slow
orderly approach, as opposed to a rapid disorderly approach. Here is a
step-by-step walkthrough of what is really happening.
The October scare tactics should not frighten you. However, you
should be concerned about this long term elite plan to destroy your
wealth.
The centrepiece of the elite plan to wipe out debt and destroy
wealth is the world money issued by the International Monetary Fund, the
IMF.
This world money is called the special drawing right, or SDR. The
SDR is actually not that complicated. The US Federal Reserve can print
dollars, the European Central Bank (ECB) can print euros and the IMF can
print SDRs — it’s that simple.
The main difference is that we can keep dollars or euros in our bank
accounts or wallets, but SDRs are for countries only. The IMF adds them
to national reserves.
Countries can swap SDRs for dollars, euros, yen or other major
currencies using a secret trading facility inside the IMF in Washington.
So the inflationary potential of printing trillions of SDRs is the same
as printing trillions of dollars or euros once the recipients make the
swap.
The main difference between SDRs and dollars or euros is that no one
is accountable. When the IMF floods the world with SDRs, you won’t be
able to blame the Fed or ECB. Few people will have any idea what’s
happening.
They’ll just find out the hard way that inflation has wiped out their savings.
That’s the background for SDRs. But there’s a chronology of coming
events. As events unfold, you’ll be able to see them in the proper
sequence and perspective. Two of these events have already occurred.
Here’s the calendar:
- 17 September 2015 — The Fed’s Open Markets Committee announces policy changes in interest rates
- September 2015— President Xi of China visits the White House
- 9 October 2015 — IMF annual meeting in Lima, Peru
- November 2015 (exact date TBA) — IMF Executive Board discusses ‘new’ SDR
- 30 September 2016 — New SDR goes into effect
As expected, the Fed didn’t raise rates at the September meeting.
The visit from President Xi was important. Chinese official want the yuan to be included in the SDR basket.
By itself, including the yuan in the SDR basket will not disrupt the
international monetary system and will not overthrow the dollar as the
leading global reserve currency. But it is an important sign of respect
and does represent enhanced prestige, which China desperately wants.
The US has veto power over the IMF’s decision to include the yuan in
the SDR. The US has used its clout to put China on its best behaviour
before the IMF makes the decision. This means China has to put an end to
its currency war with the US and peg the yuan to the dollar.
However what you will notice from the calendar of above, is how closely IMF events relate to it.
That’s reflects the fact that the IMF is closely coordinating its
efforts with central banks and heads of state. In the past, the US
Treasury was the primary agency involved with the exchange value of the
US dollar.
The Fed focussed on the economy but did not involve itself with the dollar in international markets. That has changed.
When I met Ben Bernanke in Korea recently, he told me he was heavily
involved in discussions with the IMF in 2009 and 2010 on a variety of
issues including IMF voting rights, issuance of SDRs, US funding of the
IMF and an increased voice for China.
This four-way interaction of the White House, Fed, Treasury and IMF is now well entrenched.
Another year of deflationary forces
The possibility of including the yuan in the SDR will certainly come up in the hallways and private dinners in Lima.
But it is not on the official agenda and will not be decided in October.
How do we know? The IMF told us!
Gerry Rice is the official spokesman for the IMF.
Here’s a direct quote from Rice’s press briefing on 23 July 2015, in which he discussed China and the SDR:
‘The SDR process — that’s shorthand for the Chinese request
from the government of China — that the Chinese currency…would be
included in our SDR basket of currencies… the SDR review is going along
well…we’re expecting the formal board discussion of this issue toward
the end of this year probably in November, but toward the end of the
year.’
That’s straight from the horse’s mouth — no need to guess or
speculate. In other words, there is no global monetary reset coming in
October regardless of what you may have read elsewhere
Even the November 2015 ‘discussion’ is not decisive. On 4 August
2015, the IMF extended the final action to update the SDR basket to 30
September 2016.
That delays any action with respect to China by another year.
More importantly, it means another year of yuan-dollar finesse and
another year of deflationary forces if the Fed keeps talking tough,
forcing China to go along in order to gain admission to the SDR.
Including the yuan in the SDR next year will be a highly important
symbolic step, but it will have no immediate impact on the international
monetary system.
The yuan is not even close to replacing the US dollar as a global
reserve currency. There are not enough yuan denominated sovereign bonds
for investors to park their reserves, and there is no well developed
yuan bond market to provide liquidity.
China has been buying a lot of gold, but it has printed more money
than the Fed the last six years and has nowhere near enough gold to
launch a new gold-backed currency.
The most important thing for you to understand is that China does
not want to rock the boat — they want to join the club. This means the
IMF’s special club of SDR members.
The future world reserve currency is not the US dollar or the yuan. It’s the SDR.
The impact of a September 2016 decision to include the yuan in the
SDR will resemble China’s recent updating of its gold reserve position.
It happened, but it was not the big deal many expected it to be.
That’s just how the global elites like things — slow and steady.
There is a plan to steal your money with inflation, but it consists of
many small steps, not a few big ones.
Adding the yuan in the SDR basket in late 2016 is an important step, but it is not a game changer.
Including the yuan in the SDR will take another year.
Making the SDR the new global reserve currency will take a few more years and a lot more SDR printing.
Regards,
Jim Rickards
