Monthly Archives: January 2015

China & Saudi Arabia Forcing USD Acquiesce

Oil

By JC Collins

Back in August of 2014, Saudi Arabia signed a multi year energy deal with its largest crude oil customer China. This energy deal was focused more on nuclear energy and solar energy as opposed to crude.  The agreement between the King Abdullah City for Atomic and Renewable Energy and Chinese Nuclear Energy Corporation is meant to develop domestic energy projects within Saudi Arabia worth $80 billion for nuclear and $100 billion for solar, between 2014 and 2032.

Saudi Arabia is the largest crude oil producer in the Middle East as well as OPEC.  It is also the largest consumer of hydrocarbons, with about 25% of its production being used for domestic needs.  The country would like to change that by developing nuclear and solar energy which would allow it to export more of its crude and other hydrocarbon production onto the world market.

China is Saudi Arabia’s biggest trading partner and purchases on average one million barrels of crude a day.  Chinese companies are becoming heavily invested with Saudi industrial and infrastructure projects.  These projects within the country will increase the demand for power, transportation, industry, and desalination, increasing domestic crude consumption from 3.4 million barrels per day in 2010 to 8.3 million barrels per day by 2028.

The expansion of credit fueled shale oil development in North America, and elsewhere, like Russian development, has driven up production over supply demands. OPEC members, who now have conflicting oil price policies, as determined by the mandates of low cost producers, such as Saudi Arabia, and high cost producers, such as the United States and Iran, support the eventual fragmentation of the cartel as discussed in the post The End of OPEC.

With the end of QE monetary policies the source of high risk and easy credit has been removed and the economic fundamentals will now begin returning to the world markets, both equity and commodity.  The decrease in oil prices is being promoted as an oversupply, but with the realization of the deepening deflation situation, as being experienced in Europe, and elsewhere silently, the focus will shift to the decrease in the demand for crude as the problem.

With no new QE or credit injection programs coming forth, the global markets will soon adjust to the deflation which is taking place.  The over production of crude at that time will cause the price of oil to collapse even further, perhaps even into the $20 per barrel range.

The adjustment to equities, stock markets, and the speculation which has occurred over the last 7 years is making itself very visible in the price of oil, but will soon spread to other areas of the economy.

The source of easy credit is found in the low interest rate policies of the central banks. These lows rates are causing a flood into the USD as the currencies of the emerging markets are being depreciated. The appreciation in the USD is causing considerable pressure on the existing exchange rate regime.

This pressure is already manifesting itself throughout Europe and Asia and is allowing the United States to continue delaying reform policies to the international monetary framework.  But these delays will not last indefinitely, as the squeeze created by Saudi Arabia is forcing the crude oversupply to continue.  While at the same time demand is beginning to decrease further due to the deflation which is inherent in the removal of easy credit.

The United States is using the amount of USD in the foreign reserve accounts around the world as leverage to delay monetary reform to buy time in order to implement broader geopolitical and economic strategies to secure further advantage in the emerging multilateral system.

The BRICS countries have been putting pressure back on the USD by limiting the amount of accumulation in the foreign reserve accounts.  This is achieved by using more Chinese renminbi denominated assets as opposed to USD denominated assets. This decreases the flow back into the United States as part of the balance of payments system which in turn decreases the domestic requirement for sources of high risk easy credit.

Reluctantly the United States will accept the multilateral monetary framework as it removes the dollar as the primary reserve currency used in the international system.  This will correct the deficit in the balance of payments system and lean to further correction in the exchange rate regimes.

The additional subjective relationship between Chinese interest and Saudi Arabian interests are found in the attempts to eliminate high risk and easy credit in the United States, which ahs fueled the shale oil boom.  A boom which has increased supply and put all oil producers under the pressure of cutting production.

Saudi has been very vocal about not cutting production and driving out the high cost competitors in the industry.

The existing monetary framework is beginning its tremendous shift towards the multilateral and the price depreciation in oil is only the beginning.  The alternative sources of energy, such as nuclear and solar, will continue to develop and be funded by SDR liquidity.  New geopolitical alliances are being constructed and the world of 2016 will be profoundly different than the one that just started.  – JC

http://philosophyofmetrics.com/2015/01/08/china-saudi-arabia-forcing-usd-acquiesce/#more-2024

Reversing Bretton Woods

Reverse

16 Comments 

By JC Collins

With so much happening on the economic front over the last few weeks its important to ground ourselves and take stock of just what is actually taking place. The continued depreciation of oil and the beginnings of depreciation of the stock markets are the result of the end of Quantitative Easing and the beginnings of the deflationary correction which will build the case for the economic transition from the unipolar USD Bretton Woods based system to the multilateral SDR based system.

There is much talk in the media, both mainstream and alternative, that the return of QE is imminent and the Federal Reserve will not be able to raise interest rates. These proclamations are not considering the reality that deflation and depreciation is exactly what is being engineered, and has been since 2008.

Due to the level of USD in the foreign reserve accounts around the world there is not one single government or central bank that is willing to allow the dollar to collapse.  Nor is there any one country that is willing to submit their domestic currency to the pressure inherent in the status of global reserve currency.  Anyone who suggests otherwise simply does not understand the fundamentals of macroeconomic frameworks and the Triffin Paradox, which has been proven factual by 70 years of USD historical data.

The Triffin Paradox, or dilemma, is defined by the pressure exerted upon a domestic currency when it is used as the global reserve currency.  As the currency accumulates in the foreign reserve accounts of central banks around the world, it creates depreciation pressure on the home economy.  The United States has exported this depreciation though exchange rate imbalances.

The preliminary framework of the multilateral system has been carefully constructed over the last few years with only IMF reform left on the table.  The overt political tension which will soon surround these reforms and the deflation which is now taking place will soon merge into one socioeconomic paradigm which will push the international monetary system in the direction of the multilateral.

As stated in previous posts, 2015 will be a year of transition and implementation.  While alternative analysts have been weaving tales of economic collapse and war, we have been studying and reviewing the actual mechanics of the multilateral framework.

The obvious conclusion that fits the actual metrics and situation which is unfolding is that the original Bretton Woods Accord is being reversed in preparation for the SDR based system, a supra-sovereign unit of account that will not be burdened with the challenges as presented in the Triffin Paradox.

The movement and repatriation of gold which has been much lauded as signs of dollar collapse have in fact been the reversal of the Bretton Woods framework which placed allied gold in the reserve account of the Federal Reserve to support the USD system which was agreed back in 1944.

The dollar has been appreciating while the currencies of the emerging economies have been depreciating because that is the imbalance in the exchange rate system which is inherent in the USD Bretton Woods system.  In addition, the appreciation of the dollar supports the exchange of USD liquidity for SDR liquidity through the substitution accounts which are designed to facilitate a decrease in dollars in the foreign reserve accounts of central banks around the world without depreciating those assets in the process.

Those who promote the idea that China will dump the dollars they hold are spreading misleading information and likely have ulterior motives.  The USD which China holds is an investment which they have made and it is more probable that they will attempt to exchange that investment for an alternate investment as opposed to intentionally depreciating their own assets.

It would be like any of us purchasing shares of a specific company and then implementing a process to devalue those shares.  It would make no sense.

The volatility which is now building in the Euro zone also fits with the mandates of the multilateral framework.  The probability of a fracturing of the Euro is building and I would suspect that the currency basket itself will be fragmented leaving the European Monetary Union itself intact.  Each country in the European Monetary Union will revert to its own domestic currency with Germany and perhaps the Russian ruble representing the two European seats on the IMF Executive Board and in the SDR basket.

When viewed through the lens of the multilateral framework and SDR basket adjustments which are coming this year, the fragmentation of the Euro currency makes sense as a basket of currencies in a basket of currencies situation is unworkable and adds deeper layers of dysfunction.

There is no doubt that this year will be explosive with dramatic changes and devaluation across the macroeconomic spectrum. Which means its all the more important that we remain grounded and continue to build our understanding of the transition which is taking place.

The amount of USD in the foreign reserve accounts around the world has given the United States leverage on how the transition progresses, but progress it will and the USD will become one of many currencies in the SDR basket, and the SDR will become the global reserve unit of account, minus the problems as presented by the Triffin Paradox.

I’m working hard on getting the first installment of The Economic Transition Papers completed.  The first installment, titled Reengineering the Dollar, will explore the issues discussed here in more detail.   – JC

Source:  http://philosophyofmetrics.com/2015/01/07/reversing-bretton-woods/#more-2013

9/11: The Myth and the Reality – David Ray Griffin

This is a very good explanation of what is happening to us. You just have to sit down and digest it, or forever hold your peace.

Dear Andy,

 
This shocking talk brings together 
an account of the 9/11 tragedy 
that is far more logical than the 
one we’ve been asked to believe. 
Gathering stories from the 
mainstream press, reports from 
other countries, the work of other 
researchers, and the contradictory 
words of US government officials, 
David Ray Griffin presents a case 
that leaves very little doubt that 
the attacks of 9/11 need to be
further investigated.
Disturbing facts emerge that put
into serious question the official
story and reveal an enormous
deception. Packed with bonus
features, expert analysis, in-depth
commentary and unforgettable
conclusions about this tragic event
in American history.

“A devastating expose’ of the myths

and lis in the official conspiracy theory
about 9/11, Griffin scrutinizes the
timeline and physical evidence of
September 11 for unresolved
inconsistencies.” – PUBLISHER’S WEEKLY.
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Alexandra Bruce
Publisher, ForbiddenKnowledgeTV.com
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