mfioretti: dollar*

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  1. After World War I the U.S. Government deviated from what had been traditional European policy – forgiving military support costs among the victors. U.S. officials demanded payment for the arms shipped to its Allies in the years before America entered the Great War in 1917. The Allies turned to Germany for reparations to pay these debts. Headed by John Maynard Keynes, British diplomats sought to clean their hands of responsibility for the consequences by promising that all the money they received from Germany would simply be forwarded to the U.S. Treasury.

    The sums were so unpayably high that Germany was driven into austerity and collapse. The nation suffered hyperinflation as the Reichsbank printed marks to throw onto the foreign exchange market. The currency declined, import prices soared, raising domestic prices as well. The debt deflation was much like that of Third World debtors a generation ago, and today’s southern European PIIGS (Portugal, Ireland, Italy, Greece and Spain).

    In a pretense that the reparations and Inter-Ally debt tangle could be made solvent, a triangular flow of payments was facilitated by a convoluted U.S. easy-money policy. American investors sought high returns by buying German local bonds; German municipalities turned over the dollars they received to the Reichsbank for domestic currency; and the Reichsbank used this foreign exchange to pay reparations to Britain and other Allies, enabling these countries to pay the United States what it demanded.

    But solutions based on attempts to keep debts of such magnitude in place by lending debtors the money to pay can only be temporary. The U.S. Federal Reserve sustained this triangular flow by holding down U.S. interest rates. This made it attractive for American investors to buy German municipal bonds and other high-yielding debts. It also deterred Wall Street from drawing funds away from Britain, which would have driven its economy deeper into austerity after the General Strike of 1926. But domestically, low U.S. interest rates and easy credit spurred a real estate bubble, followed by a stock market bubble that burst in 1929. The triangular flow of payments broke down in 1931, leaving a legacy of debt deflation burdening the U.S. and European economies. The Great Depression lasted until outbreak of World War II in 1939.

    Planning for the postwar period took shape as the war neared its end. U.S. diplomats had learned an important lesson. This time there would be no arms debts or reparations. The global financial system would be stabilized – on the basis of gold, and on creditor-oriented rules. By the end of the 1940s the Untied States held some 75 percent of the world’s monetary gold stock. That established the U.S. dollar as the world’s reserve currency, freely convertible into gold at the 1933 parity of $35 an ounce.
    It also implied that once again, as in the 1920s, European balance-of-payments deficits would have to be financed mainly by the United States. Recycling of official government credit was to be filtered via the IMF and World Bank, in which U.S. diplomats alone had veto power to reject policies they found not to be in their national interest. International financial “stability” thus became a global control mechanism – to maintain creditor-oriented rules centered in the United States.

    To obtain gold or dollars as backing for their own domestic monetary systems, other countries had to follow the trade and investment rules laid down by the United States. These rules called for relinquishing control over capital movements or restrictions on foreign takeovers of natural resources and the public domain as well as local industry and banking systems.

    By 1950 the dollar-based global economic system had become increasingly untenable. Gold continued flowing to the United States, strengthening the dollar – until the Korean War reversed matters. From 1951 through 1971 the United States ran a deepening balance-of-payments deficit, which stemmed entirely from overseas military spending. (Private-sector trade and investment was steadily in balance.)
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  2. US-Saudi relationship has shown strains in recent years. Saudi anger over Obama-era rapprochement with Iran and unwillingness to go full-Gaddafi on Assad has been met with US threats about exposing "Saudi" terror, including the 9/11 lawsuits and the 28 pages. The recent American shale oil boom has meant that Saudi has seen selling less oil to the US, and China is only too happy to step in and take America's place as Saudi Arabia's most-favored trading nation. And now China is setting up a yuan-denominated oil exchange that could potentially mean that the Saudis and others may be trading oil for yuan in the future.

    This is why the CIA and other outside forces are extremely interested in what is happening in Saudi Arabia right now, and why, by extension, the rest of the world should be as well. After all, by now we know all too well what happens to countries that try to back away from the petrodollar, don't we? Only this time, it's not some "minor" players on the grand chessboard who can be taken out of the game with a simple NATO lovebomb campaign. This time we're looking at the potential of Russia and China backing this shift away from the petrodollar en masse. And we all know what that spells.
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  3. few would have believed that the Petrodollar did indeed quietly die, although ironically, without much input from either Russia or China, and paradoxically, mostly as a result of the actions of none other than the Fed itself, with its strong dollar policy, and to a lesser extent Saudi Arabia too, which by glutting the world with crude, first intended to crush Putin, and subsequently, to take out the US crude cost-curve, may have Plaxico'ed both itself, and its closest Petrodollar trading partner, the US of A.

    As Reuters reports, for the first time in almost two decades, energy-exporting countries are set to pull their "petrodollars" out of world markets this year, citing a study by BNP Paribas (more details below). Basically, the Petrodollar, long serving as the US leverage to encourage and facilitate USD recycling, and a steady reinvestment in US-denominated assets by the Oil exporting nations, and thus a means to steadily increase the nominal price of all USD-priced assets, just drove itself into irrelevance.

    A consequence of this year's dramatic drop in oil prices, the shift is likely to cause global market liquidity to fall, the study showed.

    This decline follows years of windfalls for oil exporters such as Russia, Angola, Saudi Arabia and Nigeria. Much of that money found its way into financial markets, helping to boost asset prices and keep the cost of borrowing down, through so-called petrodollar recycling.

    But no more: "this year the oil producers will effectively import capital amounting to $7.6 billion. By comparison, they exported $60 billion in 2013 and $248 billion in 2012, according to the following graphic based on BNP Paribas calculations."

    In short, the Petrodollar may not have died per se, at least not yet since the USD is still holding on to the reserve currency title if only for just a little longer, but it has managed to price itself into irrelevance, which from a USD-recycling standpoint, is essentially the same thing.
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  4. Summarizing the above as simply as possible: for all those confounded by why not only the US, but the global economy, hit another brick wall in Q1 the answer was neither snow, nor the West Coast strike, nor some other, arbitrary, goal-seeked excuse, but China, and specifically over half a trillion in still largely unexplained Chinese capital outflows.

    what may have been one of the biggest drivers of DM FX strength in recent years, if only against the pegged Renminbi, is suddenly no longer present.

    While the implications of this on the global FX scene are profound, they tie in to what we said last November when explaining the death of the petrodollar. For the most part, the country most and first impacted from this capital outflow will be China, something its stock market has already noticed in recent weeks.

    But what is likely the take home message for non-Chinese readers from all of this, is that while there has been latent speculation over the years that China will dump US treasuries voluntarily because it wants to (as punishment or some other reason), suddenly China is forced to liquidate US Treasury paper even though it does not want to, merely to fund a capital outflow unlike anything it has seen in history. It still has a lot of 10 Year paper, aka FX reserves, left: about $1.3 trillion at last check, however this raises two critical questions: i) what happens to 10 Year rates when whoever has been absorbing China's Treasury dump no longer bids the paper and ii) how much more paper can China sell before the entire world starts paying attention, besides just JPM and Goldman... and this website of course.

    Finally, if China's selling is only getting started, just what does this mean for future Fed strategy. Because one can easily forget a rate hike if in addition to rising short-term rates, China is about to dump a few hundred billion in paper on a vastly illiquid market.
    Tags: , , , by M. Fioretti (2015-08-09)
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  5. According to economist Michael Hudson, the most successful debt jubilee in recent times was gifted to Germany, the country now most opposed to doing the same for Greece. The German Economic Miracle followed massive debt forgiveness by the Allies:

    All domestic German debts were annulled, except employer wage debts to their labor force, and basic working balances. Later, in 1953, its international debts were written down.

    Why not do the same for the Greeks? Hudson writes:

    It was easy to write down debts that were owed to Nazis. It is much harder to do so when the debts are owed to powerful and entrenched institutions – especially to banks.

    Loans Created with Accounting Entries Can Be Canceled with Accounting Entries

    That may be true for non-bank creditors. But for banks, recall that the money owed to them is not taken from the accounts of depositors. It is simply created with accounting entries on the books. The loans could be canceled the same way. To the extent that the Greek debt is owed to the ECB, the IMF and other financial institutions, that is another option for canceling it.

    British economist Michael Rowbotham explored that possibility in 1998 for the onerous Third World debts owed to the World Bank and IMF. He wrote that of the $2.2 trillion debt then outstanding, the vast majority was money simply created by commercial banks. It represented a liability on the banks’ books only because the rules of banking said their books must be balanced. He suggested two ways the rules might be changed to liquidate unfair and oppressive debts:

    The first option is to remove the obligation on banks to maintain parity between assets and liabilities, or, to be more precise, to allow banks to hold reduced levels of assets equivalent to the Third World debt bonds they cancel. Thus, if a commercial bank held $10 billion worth of developing country debt bonds, after cancellation it would be permitted in perpetuity to have a $10 billion dollar deficit in its assets. This is a simple matter of record-keeping.

    The second option, and in accountancy terms probably the more satisfactory (although it amounts to the same policy), is to cancel the debt bonds, yet permit banks to retain them for purposes of accountancy.

    The Real Roadblock Is Political

    The Eurocrats could end the economic crisis by writing off odious unrepayable debt either through quantitative easing or by changing bank accounting rules. But ending the crisis is evidently not what they are up to. As Michael Hudson puts it, “finance has become the modern-day mode of warfare. Its objectives are the same: acquisition of land, raw materials and monopolies.” He writes:

    Greece, Spain, Portugal, Italy and other debtor countries have been under the same mode of attack that was waged by the IMF and its austerity doctrine that bankrupted Latin America from the 1970s onward.

    Prof. Richard Werner, who was on the scene as the European Union evolved, maintains that the intent for the EU from the start was the abandonment of national sovereignty in favor of a single-currency system controlled by eurocrats doing the bidding of international financiers.
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  6. single currencies are never the product of debates about optimal economic solutions. Instead, currencies like the U.S. dollar itself are the result of political battles, where motivated actors try to centralize power. This has most often occurred “through iron and blood,” as Otto van Bismarck, the unifier of Germany put it, as a result of catastrophic wars. Smaller geographic units were brought together to build the modern nation state, with a unified fiscal system, a common national language that was often imposed by force, a unified legal system, and, a single currency. Put differently (with apologies to sociologist Charles Tilly), war makes the state, and the state makes the currency.
    Tags: , , , , by M. Fioretti (2015-07-28)
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  7. "We do not have a healthy economy because we do everything to perpetuate debt, increase debt, increase regulations," he noted.

    Unfortunately, we cannot predict when exactly the dollar bubble will finally burst, the former congressman underscored, referring to the Global financial crisis of 2007-2008, that was entirely unexpected. "Nobody warned us about that," he remarked bitterly.

    Ron Paul speaking in Nevada in 2011.
    © Flickr/ Gage Skidmore
    Ron Paul: Who Profits From America's New Militarism?
    Some unexpected economic or geopolitical events may push the American economy to the brink, Dr. Paul noted, adding that plummeting oil prices have already affected the global market and major oil producers.

    "Right now, the markets have tried to correct things since '08 and '09 but the correction has been prohibited. It's just like in the Depression; we prohibited, we delayed the inevitable," Ron Paul stressed.

    Ron Paul suggested that the collapse of the dollar and the stock market could be triggered by the Fed's decision to raise interest rates. Remarkably, many experts believe the Fed will propose such a measure later this year.
    Tags: , , by M. Fioretti (2015-04-16)
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  8. I vincitori di questo nuovo Great game sembrano essere la Cina che ha incassato una fornitura di gas russo a condizioni vantaggiose e soprattutto gli Stati Uniti, che con una sola mossa riescono a scavare un solco economico e politico tra Mosca ed Europa, a ridare lustro alla NATO di cui mantengono saldo il controllo e ad assicurarsi una posizione strategica nello heartland

    La Russia attuale, come quella zarista e quella sovietica, ha bisogno di profondità strategica come garanzia della propria esistenza.

    Analogamente e in termini macroscopici rispetto a quella russa, la politica estera americana è una politica di potenza, declinata su forme economiche prima ancora che militari, e proiettata su scala mondiale. Il primato economico americano, che durante la guerra fredda non fu neanche lontanamente eguagliato dal concorrente militare di allora, è oggi sfidato dalle cosiddette economie emergenti - i BRICS nel loro insieme e la Cina in particolare - che confrontandosi con il capitalismo occidentale e stando alle sue stesse regole hanno saputo concretizzare risultati economici strabilianti (benché in calo rispetto a un quinquennio fa), ridistribuendo parzialmente il potere economico mondiale. Inoltre lo shock mondiale provocato dalla crisi economica del 2008 ha irrimediabilmente minato la credibilità americana proprio in quello che avrebbe dovuto essere il suo terreno di eccellenza, l’economia e la finanza.

    Al tempo stesso l’America politicamente non ha la stessa libertà d’azione dei primi anni del dopo Guerra fredda: il controllo straniero (cinese, in particolare) del suo debito pubblico insieme ai disastri dell’avventurismo bellico degli anni 2000 le impongono una relativa cautela sul piano militare, almeno in termini scoperti. Da questa situazione nascono due esigenze fondamentali per Whashington: da una parte trovare nuovi partner economici per dare vigore alla propria economia facendo pesare il proprio primato (si vedano i due accordi di libero scambio, il Trans Atlantic Trade and Investment Partnership, significativamente senza Russia, e il Trans Pacific Partnership, significativamente senza Cina), e dall’altra sabotare gli accordi economici rivali, come l’Unione doganale Eurasiatica

    Per comprendere l’importanza della profondità strategica, un paragone vale più di mille discorsi: quando nel 1962 i sovietici tentarono di collocare missili sull’isola di Cuba, la reazione americana al rischio di avere in prossimità delle proprie coste un’installazione militare nemica li indusse a reagire con la massima fermezza, arrivando a un’escalation militare tra le più gravi della guerra fredda che fece desistere l’URSS dal proprio intento. La difesa della profondità strategica non è una velleità russa, ma un pilastro imprescindibile della difesa di ogni grande potenza. Ignorare o trascurare questo fattore, può portare a scelte irresponsabili con conseguenze serie per la sicurezza regionale e globale.

    Fino alla primavera del 2014, in Ucraina c’era un presidente regolarmente eletto dall’insieme dei cittadini, corrotto né più né meno dei suoi avversari, che consapevole della condizione di “terra di frontiera” del suo paese portava avanti una politica equilibrista tra i due scomodi vicini europeo e russo, con un occhio di riguardo per il secondo. Quando nel novembre 2013 Janukovyc si rifiuta di firmare il DCFTA, l’accordo di libero scambio tra Ucraina e UE, il malcontento popolare monta fino ai moti di piazza che si concludono con la sua destituzione nel marzo 2014. Che il malcontento verso Janukovyc fosse reale è un dato di fatto, che tale malcontento sia stato finanziato, aizzato e armato dagli Stati Uniti per far naufragare i progetti russi e l’asse economico Mosca-Berlino, anche.
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  9. Nel frattempo il gigante asiatico è diventato il primo produttore di oro a livello globale con una quota di oltre il 14% del totale, vale a dire circa 400 tonnellate sulle 3mila estratte ogni anno. Gli addetti ai lavori segnalano però come neppure un’oncia di questo oro lasci il Paese. Anzi, attraverso la porta di Hong Kong continuano ad affluire grossi quantitativi di metallo giallo. La produzione nazionale e l’import non finiscono solo in riserve, ma è molto probabile che la reale entità delle disponibilità cinesi si sia comunque molto accresciuta rispetto al dato del 2009.

    La voracità di oro cinese è paragonabile solo a quella della Russia. La banca francese Société Générale ha segnalato come nelle ultime settimane Mosca sia stata costretta a vendere parte dei suoi lingotti sul mercato per far fronte al drammatico deterioramento delle condizioni finanziarie del Paese e al crollo del rublo. Ma negli ultimi anni i forzieri della banca centrale russa non hanno fatto altro che riempirsi. Nel 2010 lo Stato presieduto da Vladimir Putin ha razziato sul mercato qualcosa come 140 tonnellate, l’anno seguente altre 94.

    Maurizio Mazziero, economista e fondatore del centro studi Mazziero resarch, ritiene che questi acquisti avvengano con uno scopo preciso. “La mia idea”, spiega, “è che prima o poi Cina e Russia possano far valere questa situazione sui mercati internazionali. Magari proponendo che gli scambi commerciali avvengano utilizzando un paniere di valute in una certa misura collateralizzato con l’oro”. “Non è infatti da escludere”, continua Mazziero, “che in un futuro non troppo lontano si arrivi a un momento in cui non ci sarà più fiducia nelle monete completamente smaterializzate e affidate unicamente alla gestione delle banche centrali”.

    Al momento Berlino può contare, si stima, su riserve per quasi 3.400 tonnellate. Di questi lingotti soltanto il 31% si trova però attualmente all’interno dei confini nazionali e l’intenzione tedesca e di portare questa quota al 50% entro i prossimi cinque anni. Nella stessa direzione si sta muovendo la Banca centrale olandese, che ha annunciato l’intenzione di rimpatriare oro di sua proprietà depositato negli Stati Uniti.

    E l’Italia? Per ora tutto tace. La Penisola dispone di riserve significative, stabili da circa un decennio: 2.451 tonnellate per un controvalore di circa 95 miliardi di dollari. Stando ai dati ufficiali si tratta della terza riserva dopo Usa e Germania, di poco superiore a quella francese. Anche in questo caso però solo una parte delle riserve si trovano sul suolo italiano.
    Tags: , , , , , , by M. Fioretti (2014-12-31)
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  10. La Russia è una semi-dittatura sprecona e largamente inefficiente, concordo. Questo non significa però che la sua economia dal 1998 a oggi non abbia conosciuto una vigorosissima crescita, quintuplicando il valore nominale del prodotto interno lordo (cfr. Grafico 2). La domanda è: questo trend si può spiegare solo con il prezzo delle materie prime? Direi di no, sarebbe quantomeno ingeneroso.
    Non è la prima volta che il prezzo del greggio tracolla: tra 2008 e 2009, in meno di un anno, il Brent arrivò dal massimo assoluto di 145 dollari al minimo relativo di 35 dollari (vedere ancora Grafico 2) senza che questo determinasse né il crollo dell’economia russa né una sua significativa contrazione (si registrò “appena” un -4%, che, credetemi, considerata la volatilità tipica delle economie emergenti, vale meno di una febbruccia a 38°).
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