Sunday, March 18, 2018

Robert Pringle - The Capture of Money

Whenever Robert Pringle offers a new article on his blog, I try to feature it here. Mr. Pringle has a long and established career working with central bankers from around the world. 

His decades of experience provide a valuable insight into the world of central banking that we don't see covered that well in mainstream media. Below are the opening paragraphs of his new article, The Capture of Money. In this article, he explains why he thinks "money has become an elite sport".


"Money is a near-universal social institution. It  evolved to support human cooperation and to control and coordinate the life of humankind. Like other core institutions, such as marriage and language, the forms that money takes may differ widely. The values and norms governing money’s use, and the practices associated with it, also vary widely.

For the individual, money is also a psychological symbol. Money allows each person to enjoy the fruits of others’ work. For many billions of people, obtaining money is the sole purpose of their everyday life.

But there is a difference in how we, as individuals, treat marriage and language, on one hand and money on the other."


Some info about Robert Pringle:

"After obtaining a Masters degree in economics, sociology and history from King’s College, Cambridge University and post-graduate study at the London School of Economics, Robert joined The Banker, part of the FT group, later being appointed the Editor.
He also served as deputy director of the Committee on Invisible Exports, a body representing a wide range of UK service sectors, which was set up by the Bank of England to study and publicise the contribution made by financial, business, professional and allied services to world trade and the UK economy. He led a study that made the first published estimates of the invisible earnings of UK professions such as law, medicine and accountancy.
From 1979 to 1986  he was the first executive director of the Group of 30, an influential think tank based at the time in the World Trade Centre, New York (it has since moved to Washington, DC). For the G30, Robert co-authored pioneering studies of the foreign exchange and interbank markets, and on IMF borrowing from the private markets, and the emerging profession of official reserve management."

Thursday, March 15, 2018

Bloomberg - How China is About to Shake Up the Oil Futures Market

The date for trading oil contracts in yuan is coming up on March 26th. We will keep an eye on this event to see how much impact it has. Bloomberg published this article (excerpt below) that is a pretty good summary of where things stand leading up to the opening of trading. 


"China, the world’s biggest oil buyer, is opening a domestic market to trade futures contracts. It’s been planning one for years, only to encounter delays. The Shanghai International Energy Exchange, a unit of Shanghai Futures Exchange, will be known by the acronym INE and will allow Chinese buyers to lock in oil prices and pay in local currency. Also, foreign traders will be allowed to invest -- a first for China’s commodities markets -- because the exchange is registered in Shanghai’s free trade zone. There are implications for the U.S. dollar’s well-established role as the global currency of the oil market."

My added comments: It appears that China is launching a PR campaign to try and convince the world that it is ready to open up its system so as to promote broader use for their currency. This article in RT is one example of that

We will just follow this to see what happens over time and how much impact this has on the US dollar.

Added news note: runs this article on the launch of the new contract with these concluding comments:

"While foreign investors are allowed in the petro-yuan trade, Gu said there have been relatively few accounts opened by overseas clients, indicating concerns over market liquidity and regulatory uncertainties.

"It would be difficult to challenge the dollar's dominance in oil pricing in the short term," Gu said. "In the long term, however, multi-currency pricing will become a trend in the future."

Monday, March 12, 2018

Jim Rickard Latest on Bitcoin, China and The Fed

Jim Rickards has release a flurry of articles recently on a variety of topics. Below are links to those articles with a selected excerpt from each one. Jim talks about new efforts to regulate Bitcoin, problems he sees coming from China and headed towards the US, and why the Fed wants inflation so badly.


Big Brother is Coming for Bitcoin

"Many advocates of bitcoin and other cryptocurrencies have a na├»ve belief that their digital assets are “beyond the reach of governments,” “cannot be traced” and “cannot be frozen or seized.”  They’re beginning to learn otherwise."    full article

SEC Lowers the Boom on Bitcoin

"I’ve warned repeatedly that government regulators would be putting the squeeze on bitcoin and other cryptocurrencies.  Well, the noose just got tighter."   full article

China's Coming Meltdown will Spread to the US

"The coming credit crisis in China is no secret. China has $1 trillion or more in bad debts waiting to explode. These bad debts permeate the economy.

Some are incurred by Chinese provincial authorities trying to get around spending limitations imposed by Beijing. Some are straight commercial loans on bank balance sheets. Some are external dollar-denominated debts owed to foreign creditors. The most dangerous type of debt involves a daisy chain of insolvent corporations buying debt from each other."              full article

The Fed Must Have Inflation - Failure is Not an Option

"The Fed says incessantly that “price stability” is part of their dual mandate and they are committed to maintaining the purchasing power of the dollar. But the Fed has a funny definition of price stability.                 . . . . .

And how you construct the price index matters also. It’s an inexact science, but zero inflation seems like the right target. But the Fed target is 2%, not zero. If that sounds low, it’s not."                                    full article
Added note: Here another Bitcoin regulation article suggested to me by a reader:

Sunday, March 11, 2018

North Korea News Note

Thursday (March 8) the world got a surprise announcement that North Korea is offering to meet with US President Donald Trump to discuss potential denuclearization by North Korea. Pundits quickly started to debate whether North Korea is serious and whether or not this was a "win" for President Trump. Here, we are more concerned on any impact events related to North Korea may have on global markets and financial stability.

It is important to continue to monitor this story to see if peace will be achieved and take potential major conflict between the US and North Korea off the table. Obviously, it is too early to tell. Hopefully, this is a legitimate offer by North Korea and can actually ramp down the global tension and lead to a long term resolution of the problem. We will just continue to follow it here.

Wednesday, March 7, 2018

Alasdair Macleod Offers Comments on Upcoming Petro-Yuan Oil Contcact

This is some news we think is worth follwing since it appears that the so called Petro-Yuan oil contracts are expected to open trading later this month on March 26th. In the 3 minute video below (link to it here) Alasdair Macloead offers some comments on this event. Below the video I will have a few added comments.


Alasdair Macleod on Upcoming Petro-Yuan Oil Contract

My added comments: This upcoming event is attracting quite a bit of attention in both mainstream and alternative media sources. There is a wide range of views on the impact of this all the way from almost no impact at all to the beginning of the end of the so called "Petro-Dollar" era. 

In this video Mr. Macleod mentions that President Trump has now announced new tariffs on China and suggests that this may be part of this whole situation. I don't pretend to know what all may be involved with this, but here are a few bullet points we can list that do know to be true whether they tie to this event or not:

- China (and Russia) have been adding to their sovereign gold reserves at a heavy pace over the last several years for some reason and both are continuing to add to gold reserves
at substantial levels

- China and Russia have both stated publicly that they are interested in ways to bypass the US dollar in the future

- Russia is under sanctions from the US and now China is the target of new tariffs that some believe may escalate into a "trade war"

- Venezuela and Iran have recently expressed interest in trying to setup sovereign cryptocurrencies related to oil to perhaps avoid US sanctions

- most everyone agrees that one key to the US dollar assuming the role of global reserve currency is that most global oil trading contracts are priced in US dollars and settled in US dollars creating substantial global demand for US dollars

All of this bears watching closely this year. On top of the potential for conflct to arise over sanctions, tariffs, and currencies, we also still have North Korea lingering in the background. Obviously, there is lot going on between the US, China, Russia, and North Korea.

According to Jim Rickards, President Trump held off on imposing tariffs on China because he wanted them to help the US out in regards to North Korea. Jim says that China did not follow through on promises to do that and so now President Trump sees no reason to hold back on the tariffs he has wanted to impose for a long time and perhaps even label China as a "currency manipulator".  He offers more thoughts on the situation in this recent article.

All of this has the potential to create a lot of turmoil globally this year and certainly could upset world markets. These are the kinds of events we try to monitor here in case something does erupt that would ignite a new global crisis. Anything that disrupts the current monetary system could lead to major changes that we do try to watch for here.

On the one hand, the US economy seems to be pretty stable. The US stock market is near all time highs. Employment reports seem to be pretty good. There is record high business and consumer confidence. However, we still have to keep a careful eye on the events mentioned above along with the impact of further money tightening by the US Fed and other central banks. There are plenty of serious potential problems that could arise pretty quickly despite the relative calm that seems to exist for the time being.

Monday, March 5, 2018

The Case for a Commodity Reserve Currency

Readers here know that we are always on the lookout for ideas on monetary system reform. I have been fortunate to listen in from time to time on some email discussions between economists who discuss various ideas and proposals for reform.

Dr. Leanne Ussher was very kind to forward me this link to a 2009 paper that looks at the idea of a "Commodity Reserve Currency". Below is the abstract that provides a summary of the proposal. Dr. Ussher advises me that she is working on some concepts for a future potential global reserve currency that expand on the main idea presented in this paper. 


Global Imbalances and the Key Currency Regime: The Case for a Commodity Reserve Currency

This paper considers Kaldor's 1964 proposal for a commodity reserve currency (CRC) as a serious alternative to the current system, which has the US dollar as the world reserve currency. It argues that the reserve-currency status of the US dollar helped to create global imbalances and financial fragility pre-empting the current crisis. The primary goal of the CRC was to resolve the 1960 Triffin dilemma, which remains a problem today. Following a brief history of alternative monetary reform proposals, the CRC is outlined. Backed by a basket of 30 or so commodities, the CRC would fix their price index in terms of the international reserve and reduce the disorderly swings in individual commodity prices. Sovereign governments would be free to fix or float their national currencies to the CRC. With growing fears over global warming and national resource security, particularly in the world's poorest countries, the introduction of a CRC could reduce supply constraints, stabilize costs of production, promote global effective demand from the periphery and balance growth between periphery and core countries.
My added comments: By now readers here should understand that there are a variety of ideas and proposals out there that are seriously discussed by economists as ways to reform the current monetary system. I have attempted to feature a variety of those here so that readers may be aware of them and also explore them further if they wish. I will add this article to the page on this blog where I have listed some of these various ideas and proposals. When Dr. Ussher is able to provide some added information based on her work on this idea, we will feature that in a followup article in the future.

Thursday, March 1, 2018

Currency (and Cryptocurrency) Wars for Real?

The term Currency Wars has been used quite a bit in recent years to describe a situation where countries actually try to use devaluation of their own currencies against each other in an effort to stimulate domestic exports. Jim Rickards even wrote a popular book on the subject.

A question we might raise based on what we are seeing in the news lately is if we are seeing new "Currency Wars" alongside "Cryptocurrency Wars" for real? In this case we are not just talking about countries trying to gain a trade advantages, we are talking about about actual economic attacks on efforts by countries to find ways to bypass the US dollar. Some are wondering if the recent moves by Venezuela and Iran mentioned in this recent article will ramp up these new (and different) kinds of "currency wars" even more. Let's take a look at it below.


Here are the paragraphs from the article we want to focus on:

"There are fears that the rise of state-backed cryptocurrencies could pose a challenge to international efforts to regulate financial transactions and impose sanctions. The countries most interested in the technology – Iran, Venezuela and Russia – are all targeted by U.S. sanctions.

The Treasury Department has warned that U.S. citizens purchasing these currencies may be violating sanctions laws. And just last month, Treasury officials told Congress that rogue states and international criminal organizations are using virtual currencies "to launder their ill-gotten gains."

In a recent email discussion on this news, one the the experts I hear from on issues like this offered this comment:

"Fascinating. One aim - the main aim? - apparently is to "skirt" US sanctions. What will the US do? If the US criminalises use of such a currency who is going to accept it? I was prompted to look up the US Treasury sanctions website  --  what a bureaucracy! It seems there are some 24 countries on the list. If Congress/Admin expands the use of sanctions, further incentives to create alternative currency would clearly grow."

This thought suggests that the US and these other nations looking for ways around US sanctions and alternatives to the US dollar as global reserve currency are taking this new kind of "currency war" quite seriously. How seriously? Take a look at this statement on the US Treasury web page regarding US sanctions now in place:

551. In December 2017, Venezuelan President Nicolas Maduro announced plans for the Government of Venezuela to launch a digital currency. According to public reporting, Maduro indicated that the digital currency would carry rights to receive commodities in specified quantities at a later date. Were the Venezuelan government to issue a digital currency with these characteristics, would U.S. persons be prohibited from purchasing or otherwise dealing in it under E.O. 13808?
A currency with these characteristics would appear to be an extension of credit to the Venezuelan government. Executive Order 13808 prohibits U.S. persons from extending or otherwise dealing in new debt with a maturity of greater than 30 days of the Government of Venezuela. U.S. persons that deal in the prospective Venezuelan digital currency may be exposed to U.S. sanctions risk. [1-19-2018]

There are some who believe that it is so important to the US for the US dollar to remain the primary global reserve currency that the US would go to an actual shooting war over that issue if it felt threatened enough to warrant that. 

For now, it appears that the battle over currencies (and now perhaps state sponsored cryptocurrencies by unfavored nations) will be fought with things like sanctions and tariffs. But this situation does bear watching as more and more nations around the world look at ways to bypass sanctions and undermine the role of the US dollar as global reserve currency. I would imagine that Russia and China are paying close attention.

Wednesday, February 28, 2018

OT: Russia Monitors Everything?

With all the news about Russia in the US political arena, I thought I would toss out this bit of off topic information. It appears that Russia monitors just about everything on the internet including this blog at times. 

I have noticed that for some reason I get a large number of "page views" coming from Russia here on this blog at times. It seems to happen whenever I mention certain key words like Bank for International Settlements (BIS) or IMF, etc. Below I pasted in my blog page views by country for the recent past few days so you can see what I mean.

                                                                    page views

United States
United Kingdom
Hong Kong

Not sure why they would care about this blog, but I suspect they simply have programs that constantly automatically monitor the internet for certain key phrases etc. I can go for weeks with no page views from Russia and then suddenly they show up in mass for whatever reason (sometimes several hundred in just a few seconds). I am certain these are not individual people reading this blog as the volume of sudden page views is too large too fast for that to make sense.

Monday, February 26, 2018

Andrew Maguire Announces "Kinesis" -- Gold/Silver Backed Cryptocurrencies

This is a followup on news we have covered here for awhile. Recently, Andrew Maguire posted this news on his Twitter feed. It is announcing the startup of "Kinesis".  Andrew Maguire is a member of the Allocated Bullion Exchange (ABX) Advisory Committee.

Kinesis is a new effort at a gold and silver backed cryptocurrency with plans to expand beyond that. You can take a look at the detailed blueprint released for Kinesis here. Below is a key section from page 5 of the Kinesis blueprint (I added the underline for emphasis).


"This model is highly revolutionary alone, however to take it the next step further, already in place is a highly disruptive retail and institutional commercialisation strategy with unique distribution and committed adoption from day one of launch.

Pre-existing investment commitments are in place for the Kinesis currency suite which will surpass the largest ICO to date by a significant multitude. Kinesis is being developed and being brought to launch by a consortium of industry leading organisations in the precious metal trading, mining, refining, exchange, technology, blockchain, mobile banking, vaulting, postal system and marketing spheres. From launch the system will have extensive institutional and retail distribution, integration, liquidity and adoption.

Our liquidity, which will be provided by professional bullion market participants and others, will enable billions of dollars of value to efficiently enter and exit the market. Direct and indirect integrations will provide for immediate adoption into hundreds of millions of users."

My added comments: I believe the paragraphs posted just above are a major key for readers to watch for as this product rolls out during 2018. When I originally tried to cover this story back in the summer of 2017, I was aware that there was supposed to be significant institutional support behind this concept at its launch. For whatever reasons, that launch was aborted

Later the Allocated Bullion Exchange (ABX) released this news and this news that confirmed some of the information I had heard about back in the summer of 2017 (but did not publish since no public announcement was made at that time).

Now it appears that the ABX is ready to launch this new gold and silver backed cryptocurrency product during 2018 with a new partner called Kinesis. They plan an ICO (Initial Coin Offering) in mid 2018 which has a goal to raise $200 million in capital (see page 40 of the blueprint).

Based on the earlier news releases from the ABX cited above and the information on pages 5 and 20 of the Kinesis Blueprint document, I am assuming that Kinesis is saying that this product will launch with support from the Indonesian Post Office and with the support of an Islamic organization that claims to have 100 million members (refer to the chart on page 20 of the blueprint which says under "Kinesis Distribution Partners" -- "the largest Islamic organization in the world with 100 million members"). 

If this kind of support does indeed emerge as this product rolls out, then we will continue to follow this as a news item to cover for readers here. Obviously, that kind of support could impact the physical gold and silver markets.

Saturday, February 24, 2018

Latest News Bites on Central Bank Currencies

The idea of central banks moving towards issuing their own "central bank digital currencies" seemed to be gaining a lot of momentum for awhile, but lately the idea seems to have taken a back seat. Below are links to a few news articles on this that provide some insight on various central banks activities related to central bank digital currencies.


Bundesbank - Digital bank run a risk if central banks issue their own virtual currency

"The head of the Deutsche Bundesbank has warned of the risks to financial stability should central banks issue their own virtual currencies, including from a potential "digital bank run".

Click here to read the full article on

Reuters - Chinese Think Tank - Central Banks Should Consider Using Digital Currencies

"Central banks should consider using digital currencies in cross-border payments that could cut transaction time and costs, researchers at the Chinese Academy of Social Sciences (CASS), a top government think tank, said in a report."

Click here to read the full article on Reuters

Reuters - Swiss Bank Has No Plan for Digital Currency

Meanwhile, it is obvious that central banks and governments are still struggling with what to do about private virtual currencies (if anything). For now, they seem to mostly be interested in just issuing warnings and statements of concern:

Independent UK - ECB Wakes up to Digital Currency Concern - Polish Central Bank funds Youtube video to warn about digital currencies

And then we have some central banks trying to partner with digital currency:

Reuters - Saudia Arabia's central bank signs deal with Ripple

My added comments: I think readers can see from these articles that the idea that we are on the verge of some new global reserve currency that everyone will be using in place of the US dollar is simply not reality. We have been reporting here for some time that things seemed to be going in the opposite direction as these articles continue to show.

This is why we have put a mid 2018 deadline here on this blog for something significant to happen that would justify ongoing regular articles regarding the replacement of our current monetary system with some new version based on something that replaces the US dollar. 

Until there is actual evidence that something like that is really happening, it is simply misleading to report otherwise. We'll continue to monitor events and watch for any hint of change. But for now, there is simply no evidence to report that we are on the verge of some kind a major change in the global monetary system unless some kind of new major global financial crisis emerges to force the issue. We'll continue to watch for that as well, but at some point there is no sense in continuing to write regular articles about such an event with no evidence to suggest it is on the near term horizon (even though it could arise at any time).

The biggest events we know of to keep an eye on at this time are what happens with North Korea and if there were to be some kind of major and sharp decline in the US stock market alongside a sharp further drop in the US dollar. In his latest article, Jim Rickards says we should also keep an eye on Turkey. Those are the kinds of events to watch for and what we monitor here. 

The horrific US debt situation should be causing more concern than it does, but so far no one anywhere seems to care about it. Who knows when or if that will change any time soon. Our lawmakers in both political parties just doubled down on policies likely to explode the debt even higher, so they obviously are not concerned. And US debt keeps selling just fine, so why would anyone care?

Beyond that, the US Fed just proved over the last several years that it stands ready to create the money to buy trillions of US bonds should everyone else decide to opt out. Perhaps this is why our political leaders are no longer all that concerned how much debt they run up? The markets seem fine with trillions in new central bank money to keep things running over at Treasury if need be.

Wednesday, February 21, 2018

Petro-Yuan contracts expected to begin on March 26th

There has been a fair amount of what I call "internet buzz" on various media sources about an upcoming effort to get a "petro-yuan" oil trading contract going. The reaction to this ranges from a yawn from those who think this wil be a nonevent to those predicting this will herald in the fall of the so called "petro-dollar" world we live in now.

Below are some excerpts from an article in Vanguard that takes a look at the upcoming event.

"In the next four weeks the global international finance system would witness adjustments as the Chinese launch its oil futures contracts in its currency, the Yuan.

The  March 26, date fixed by the Chinese authorities would signal a prop up of the Yuan, its use as global currency, and probably put an end to the entrenched practice in paying for crude oil in United States dollar."  click here to read the full article in Vanguard

Added news note: Venezuela announces issuance of its new "petro" cryptocurrency and says it will follow that up with a new "petro-gold" token next week. Not sure what you actually own with either of these new currencies if you buy them which are supposedly backed by oil and gold. Here are the article links:

CNBC - Venezuelan oil backed cryptocurrency raises $735 million in one day

Zero Hedge - Petro is Born Today

Reuters - Venezuela aims to release "Petro-Gold" token

Also, a thank you to Dr. Leeanne Ussher for passing along a link to the white paper for the Venezuelan petro which you can review here:

And a thank you to reader Doug below for adding this news link in the comments section below:

"And now Iran is saying they may issue a cryptocurrency to avoid the economic sanctions."

Sunday, February 18, 2018

BIS Study on Stock Market Spillovers

This new study from the BIS has some technical jargon in it, but the main point is that what happens with the US stock market clearly does spill over into other world stock markets. Below are some excerpts.


Cross-stock market spillovers through variance risk premiums and equity flows



We first calculate the "variance risk premiums" (VRPs) that investors require for taking on stock market volatility risk in major advanced economies (AEs) and emerging market economies (EMEs) over 2007-15. We test whether the US and eurozone AEs' risk premiums affect those of other economies. We also examine the US premium's impact on equity fund flows to other economies.


To our knowledge, this is the first paper that uses a parametric model to estimate the VRP in EME stock markets. We decompose the VRP into a part that compensates for the risk of continuous price changes and one that compensates for the risk of discontinuous price changes. We then investigate the cross-market correlations of the three premiums. Moreover, we consider equity fund flows as a possible path through which such premiums spill over globally.


We find evidence of significant VRP spillovers from the United States and the eurozone AEs to other economies following the Global Financial Crisis of 2007-09. Also, increases in the size of the US premium significantly reduce equity fund flows to all other AEs and some EMEs during the same period.


We estimate variance risk premiums (VRPs) in the stock markets of major advanced economies (AEs) and emerging market economies (EMEs) over 2007-15 and decompose the VRP into variance-diffusive risk premium (DRP) and variance-jump risk premium (JRP). Daily VAR analysis reveals significant spillovers from the VRPs of the United States and eurozone's AEs to the VRPs of other economic areas, especially during the post-Global Financial Crisis (GFC) period. We also find that during the post-GFC period, shocks to the DRPs of the United States and the eurozone's AEs have relatively strong and long-lived positive effects on the VRPs of other economic areas whereas shocks to their JRPs have relatively weak and short-lived positive effects. In addition, we show that increases in the size of US VRP, DRP and JRP tend to significantly reduce weekly equity fund flows to all other AEs and some EMEs during the post-GFC period. Finally, US DRP plays a more important role than US JRP in the determination of equity fund flows to all other AEs and some EMEs after the GFC, while the opposite holds true for equity fund flows to all other AEs during the GFC. Such results indicate the possibility of equity fund flows working as a channel of cross-market VRP spillovers.

Thursday, February 15, 2018

WSJ - How Blockchain Can End Poverty

Former US Senator Phil Gramm co authors a recent article in the Wall Street Journal that argues that blockchain technology could it easier to record private property ownership and therefore promote financial inclusion. Below is an excerpt from the article.


"For a long time, Western economists failed to appreciate the relationship between private property rights and economic development. Karl Marx saw private property as the source of wealth and called for its elimination to promote equality. A century and a half later, we know that a country without a formal system for registering property rights limits its own economic development and prevents its citizens from realizing their full potential. It’s a simple yet startling fact: The road to economic development runs through the county clerk’s office at the local courthouse."

The great economic divide in the world today is between the 2.5 billion people who can register property rights and the five billion who are impoverished, in part because they can’t. Consider what happens without a formal system of property rights: Values are reduced for privately owned assets; wages are devalued for workers using these assets; owners are denied the ability to use their assets as collateral to obtain credit or as a credential to claim public services; and society loses the benefits that accrue when assets are employed for their highest and best purpose. The Institute for Liberty and Democracy, founded by Hernando de Soto in 1979, estimates that two-thirds of the world’s population lacks access to a formal system of property rights, resulting in undeveloped resources and assets worth an estimated $170 trillion, or 63% of the value of the assets of the U.S."   . . . . . .        click here to read the full article

Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute. Mr. de Soto is author of “The Mystery of Capital” and a former CEO of UEC, Switzerland’s largest consulting engineering firm.