Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on March 15, 2014
The World Is Screaming For A New Financial System
One of the key lessons we can take away from history is that the global financial system changes… frequently.
[12]
In ancient times, Roman coins were used across the region by Romans and non-Romans alike who engaged in trade and commerce.
Given how destructively successive Roman governments debased their coins, however, the reserve burden eventually fell to the Byzantine Empire, whose gold solidus coin became the dominant currency in world trade.
Over the centuries, this standard changed several more times. The Venetians, Florentines, Spanish, French, British, etc. each issued the world’s dominant currency at one point or another.
But the fundamentals of those currencies changed. Governments engaged in wanton debasement, mismanaged their economies, and accumulated massive debt levels. And eventually the world shifted to new currencies.
Since the end of World War II, the US dollar has been the dominant currency in the world.
And even though Richard Nixon ended the dollar’s convertability to gold and unilaterally abandoned the US government’s obligations under the Bretton Woods system back in 1971, the world has still clung to the dollar for the past 43-years.
But this is changing rapidly.
The Chinese, which have their own economic issues to deal with, are starting to dump Treasuries in record numbers.
Central banks are buying up more gold. Foreign countries are entering into bilateral currency swap arrangements with one another. And world governments are starting to (rather embarrassingly) demand that the US get its budget and fiscal house in order.
Most tellingly, though, member nations of the International Monetary Fund are starting to revolt.
As one of the major organizations spawned from the post-war financial structure, the IMF’s original goal was to ensure the smooth development of a new global financial system.
Over 180 countries have since become members of the IMF. But the organization runs on a quota system, with each member nation having a certain percentage of the IMF’s overall votes.
The US, for example, has the most power by far with a 16.75% share of the vote. Japan is a distant second with a 6.23% share.
This puts the US in the driver’s seat. And it’s been that way for decades.
But most of the other 180+ nations have had enough. And they’re pushing the United States to massively overhaul the current quota system.
Even typical allies are breaking ranks. Australian Treasurer Joe Hockey recently told reporters at a financial conference that they will “actively lobby” the US to reform the IMF quota issues, and that “Congress must understand that it is in the interest of the US to reform the IMF. . .”
India. China. Just about everyone imaginable is pushing for major IMF reform. Everyone except the Land of the Free. The US government seems to like things the way they are. And Congress has been very intransigent in adopting any planned reforms.
These people have their heads buried in the sand so deep that they can’t even hear the rest of the world SCREAMING for a new financial system.
This is going to happen, whether the US wants it to or not.
And while no foreign government wants a collapse of the dollar, they do very much want an orderly rebalancing of the financial system. This is already under way.
The US government may pretend that everything is fine and dandy. But given the overwhelming objective evidence out there, folks who aren’t on board with this major trend are ignoring it at their own peril.
7 Comments on "The World Is Screaming For A New Financial System"
Arthur on Sat, 15th Mar 2014 2:39 pm
If I were an American I would be very reticent with embracing the idea of wavering the reserve currency roll of the dollar and would try to postpone the end of that situation as long as possible. If I would (wildly) guess what the consequences would be for the income for an average American, I would arrive at ca. 30% net income loss. Maybe it is 20%, maybe 40%.
The best strategy for Americans to postpone the inevitable moment of loss would be to keep a low international profile, don’t start wars, be nice to uncle Putin and the Chinese. And stop excessive printing and pretend that the Chinese will get real value for their 3 trillion of excess cash.
Some day.
You can of course ignore this advice and undertake all sorts of foreign adventures and provoke that the international ‘partners’ will begin to implement measures that should eventually lead to the ‘de-americanization’ of the world.
http://www.usatoday.com/story/theoval/2013/10/15/obama-china-xinhua-shutdown-debt-ceiling/2985581/
An escalating crisis concerning the Crimea could be the catalyst for such a major geopolitical shift. And things can wind down pretty quickly, just ask the British.
J-Gav on Sat, 15th Mar 2014 4:08 pm
It’s abundantly clear that different monetary and fiscal arrangements from the ones we run on now should be a priority. And yet, nobody’s touching them.
Why? I see at least two possible reasons: 1 – vested interests and lobbies permit some to make a bundle off the present system so they have no interest in changing it; 2 – there may be a real fear that meddling with the system could set off an uncontrollable spiral of chaos as different countries’ or blocs’ agendas might not be able to reach agreement on what new course needs to be set.
Whatever the reasons, putting off the inevitable is only going to make the transition harder down the road.
Northwest Resident on Sun, 16th Mar 2014 1:38 am
“The World Is Screaming For A New Financial System”
Just plain screaming is more like it.
Makati1 on Sun, 16th Mar 2014 2:17 am
As I read, the IMF already has the new currency in effect. It is called ‘Special Drawing Rights’ or SDR’s and is already in use. The only difference is that it’s value would be tied to a basket of currencies and not just the dollar. Russia and China have both been pushing for this change for a while now.
When they decide it is time to force it, they will start selling dollars in huge amounts, causing a panic and crash around the world that will raise the demand for a new currency. Enter the SDR’s and the US becomes a 3rd world country along with all of their Western wannabees. After all, most US and EU banks are propped up with fiat dollars and other worthless paper, not real assets.
I wonder how much those 10,000+ tons of Chinese gold will be worth after the crash? 5 times today’s value? 10 times? More?
If their gold is worth about $400B+ today, an increase of 5 would more than make up for the lost value of those trillions of fiat dollars it may lose in the crash. Think about that.
Davy, Hermann, MO on Sun, 16th Mar 2014 11:00 am
Arthur said – If I would (wildly) guess what the consequences would be for the income for an average American, I would arrive at ca. 30% net income loss. Maybe it is 20%, maybe 40%.
It is a wild guess to gauge what the effects will be of either a less important US dollar reserve currency or a new reserve currency on the US economy. We can probably assume it will be negative for the consumer and the US government ability to deficit spend and pay for it with lower interest rates. I think the real pain would be with the US government. The petro dollar offshoot of this is an additional story. Arthur you and I both know the current economic system is complexly integrated. It is in many ways self-organizing through millions of individual transactions coupled with 100’s of national financial and economic policies. All these actions act in a flow and like all systems on a finite planet cycle. I can assure you that the world does not want a dollar have a 40% income loss. You don’t decouple the US currency from the global economic system reserve currency or not. The US economy is too big and globally integrated. The global system cannot handle this and there would be a serious global correction or crash. My opinion is the US currency is going to ride down the slope along with globalism. When the world de-globalizes the dollars influence will wane. The size of the US economy will ensure it remains significant in whatever reboots post globalism. There will still be international trade but not the complex integrated globalism of today. At some point the all-important local will not depend on and will not be dominated by the global. I see the dollar remaining a significant reserve currency for another reason and that is lack of an alternative. Any of the rest of the world currencies have significant drawbacks. Another issues is lack of world cooperation and coordination. The world is becoming more polarized and militant among the larger economies. The petro dollar demise might be a bigger possibility. It is definitely not good for the US consumer “IF” the US dollar value falls. A loss of value is not a given since the rest of the world is debasing currencies in a race to the bottom. China is at it now.
Makati1 on Sun, 16th Mar 2014 2:34 pm
Yes, China is debasing, as is Japan and most other non-dollar countries. Even the value of the Philippine Peso has dropped ~10% in the last few months.
The race to the bottom will eventually take down the world financial system. And why do you think that the US economy is strong and will retain it’s financial power after? I don’t. I see the IMF plan being implemented with the dollar only one of several currencies as the basis for SDRs. Others to include yuan, rubles, maybe the Euro if it survives, and several others.
The US doesn’t make anything of value except weapons and war. There are few resources left in the country to make anything with. We import half of our energy and that is not going to make it easy to rebuild when we can no longer afford to import it.
China has the advantage, as many of the US corporations are there and will remain there after. They are not patriotic. Just as many major corporations are also in Russia these days and they to will stay there. The US consumer will be in poverty and unable to borrow their way back to BAU. At least, that is how I see the current situation.
Boat on Sun, 16th Mar 2014 5:17 pm
Like China, Japan and Europe don’t have growing debt problems. If there is a crash I don’t think anyone is immune from it.