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Shanghai gold boss wants super-sovereign currency for post-crisis times

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Tom Cotton a senator from [Arkansas] saying, “Well you know China holds savings of $2 trillion or so in US Treasury bonds. Why don’t we just not pay them? They gave us the virus; let just grab it and nullify it.”

We can nullify Iranian assets, Venezuelan assets — it’s like a bank can just wipe out other deposits you have, if it wants militarily. So the United States doesn’t have any constraint on military spending, as it did uner the gold standard.

Now Herman Kahn and I on another occasion went to the Treasury Department, and we talked about what the world would look like on a gold standard. I said, “Gold is a peaceful metal. If you have to pay in gold, no country with a gold standard can afford to go to war anymore. Because a war would entail a foreign exchange payment, and you’d have to pay this foreign exchange in gold, not IOUs, and you would end up going broke pretty quickly.”

Needless to say, someone from the Defense Department said, “That’s why we’re not going to do it.”

Here’s an example: Let’s suppose that you go to the grocery store and you buy food and then sign an IOU for everything that you buy. You go to a liquor store, IOU. You buy a car, IOU.

You get everything you want just for an IOU. But when people try to collect the IOUs, you say, “That IOU isn’t for collecting from me. Trade it among yourselves. Think of it as your savings, and trade it among yourselves. Treat it as an asset, just as you treat a dollar bill saved in a cookie jar and not spent.”

Well you’d get a free ride. You’d be allowed to go and write IOUs for everything, and nobody could ever collect. That’s what the United States position is, and that’s what it wants to keep.

And that’s why China, Russia, and other countries are trying to de-dollarize, trying to get rid of the dollar. They are buying gold so that they can settle payments deficits among themselves in their own currency, or currencies of friendly countries, and avoid dollars altogether."      https://www.unz.com/mhudson/the-economics-of-american-super-imperialism/

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3 hours ago, 0R0 said:

That is an astute observation. 

I don't believe China will have a much greater weighting since its major source of forex these days are the financial adjustment of global portfolios to match the new China weightings in the MSCI global indices. 

Thank you. I do not know much about reserve currency theories in economics. But common sense make such observation : relative power of  currency of each country is a relative power of a sum of all goods and services that this country can contribute to the world. Goods that are more scarse are more important.

That is why US has petrodollar agreement with Gulf States.

US can provide services of security very important one.

US is abundant in scarse goods, with not many substitutes available: like high tech goods.

In my opinion the depth of financial markets is also bery important: services: source of capital and safe storage of value with liquidity of the market.

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(edited)

4 hours ago, 0R0 said:

Stop reading China ministry of propaganda talking points and relate to the reality.

The discussion is more interesting with various views. Lone group of Trump and US fans patting one anothers backs would be so boring.

Money printing by definition: is when Central bank buys government financial instruments. (Caveat not for the short term liquidity management but to cover fiscal and current account deficits)

EU US Japan they do it.

China does not as far as I know.

There was once press conference and FED governor was asked: IS QE money printing ? Answered : Technically not.

Edited by Marcin2
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(edited)

 

 

4 hours ago, Gregory Purcell said:

"

Tom Cotton a senator from [Arkansas] saying, “Well you know China holds savings of $2 trillion or so in US Treasury bonds. Why don’t we just not pay them? They gave us the virus; let just grab it and nullify it.”

We can nullify Iranian assets, Venezuelan assets — it’s like a bank can just wipe out other deposits you have, if it wants militarily. So the United States doesn’t have any constraint on military spending, as it did uner the gold standard.

Now Herman Kahn and I on another occasion went to the Treasury Department, and we talked about what the world would look like on a gold standard. I said, “Gold is a peaceful metal. If you have to pay in gold, no country with a gold standard can afford to go to war anymore. Because a war would entail a foreign exchange payment, and you’d have to pay this foreign exchange in gold, not IOUs, and you would end up going broke pretty quickly.”

Needless to say, someone from the Defense Department said, “That’s why we’re not going to do it.”

Here’s an example: Let’s suppose that you go to the grocery store and you buy food and then sign an IOU for everything that you buy. You go to a liquor store, IOU. You buy a car, IOU.

You get everything you want just for an IOU. But when people try to collect the IOUs, you say, “That IOU isn’t for collecting from me. Trade it among yourselves. Think of it as your savings, and trade it among yourselves. Treat it as an asset, just as you treat a dollar bill saved in a cookie jar and not spent.”

Well you’d get a free ride. You’d be allowed to go and write IOUs for everything, and nobody could ever collect. That’s what the United States position is, and that’s what it wants to keep.

And that’s why China, Russia, and other countries are trying to de-dollarize, trying to get rid of the dollar. They are buying gold so that they can settle payments deficits among themselves in their own currency, or currencies of friendly countries, and avoid dollars altogether."      https://www.unz.com/mhudson/the-economics-of-american-super-imperialism/

Our previous Malaysian Prime Minister proposed to set up a common trading currency for East Asia that would be pegged to gold, about a year ago.  Mahathir said the proposed common currency could be used to settle imports and exports, but would not be used for domestic transactions.

https://www.reuters.com/article/us-malaysia-currency-idUSKCN1T00FX

The US dollar can still be used for some time for trading with the US and for capital flows and investments.  

This is not about China, it is about the US, and the world needs a plan B.  In the past, America has been a reasonably responsible  superpower, supporting the UN, multilateral institutions and world stability (with exceptions).  We don't want to interfere in your US politics and policies, but your antics have caused disruption, anxiety and alarm.  Your policies have caused disruption to our Malaysian economy at least since 2017.  Early this year, our previous PM called on Trump to resign.

https://www.scmp.com/news/asia/southeast-asia/article/3049857/malaysias-mahathir-i-asked-trump-resign-save-us

The need to de-dollarize, at least in our part of the world is getting urgent.  

https://www.nst.com.my/news/nation/2019/05/492341/malaysia-included-us-treasurys-currency-manipulator-list-economy

My worry is not only that the US is printing money with abandon. I am worried that the US may not be able to get its pandemic under control.  Here in Malaysia, we are under lockdown and we are quite disciplined about it unlike America.

I hope that Americans will listen to this message:

https://www.npr.org/sections/health-shots/2020/04/29/847755751/compared-to-china-u-s-stay-at-home-has-been-a-giant-garden-party-journalist-says

Edited by Hotone

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57 minutes ago, Marcin2 said:

The discussion is more interesting with various views. Lone group of Trump and US fans patting one anothers backs would be so boring.

Money printing by definition: is when Central bank buys government financial instruments. (Caveat not for the short term liquidity management but to cover fiscal and current account deficits)

EU US Japan they do it.

China does not as far as I know.

There was once press conference and FED governor was asked: IS QE money printing ? Answered : Technically not.

It is bank lending that expands money supply, no differently from a central bank. But we do refer to money printing as something a central bank does when it buys assets off the market. That is how banks work, Chinese ones like all others. 

China does it too, but since it controls the main banks, they are no different than the central bank as far as they are policy tools more than they are commercial operators.  

The government bonds are largely owned by the banks, meaning that they are pretty much monetized, The banks also own 150 Trillion Yuan of each other's "bonds" against which they printed up money. 

The PBOC also owns a balance of dollar assets against which it printed up Yuan. But those Treasuries etc. are purchased through the Fed's dealer network with dollars, so also affect dollar credit internationally no differently than when the Fed does it. It affects dollar rates and it differs only in that it uses existing dollars rather than new ones to buy the dollar assets. 

 

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6 hours ago, Marcin2 said:

The discussion is more interesting with various views. Lone group of Trump and US fans patting one anothers backs would be so boring.

Money printing by definition: is when Central bank buys government financial instruments. (Caveat not for the short term liquidity management but to cover fiscal and current account deficits)

EU US Japan they do it.

China does not as far as I know.

There was once press conference and FED governor was asked: IS QE money printing ? Answered : Technically not.

Because 'technically' they're not using printing presses...

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5 hours ago, Hotone said:

 

 

Our previous Malaysian Prime Minister proposed to set up a common trading currency for East Asia that would be pegged to gold, about a year ago.  Mahathir said the proposed common currency could be used to settle imports and exports, but would not be used for domestic transactions.

https://www.reuters.com/article/us-malaysia-currency-idUSKCN1T00FX

The US dollar can still be used for some time for trading with the US and for capital flows and investments.  

This is not about China, it is about the US, and the world needs a plan B.  In the past, America has been a reasonably responsible  superpower, supporting the UN, multilateral institutions and world stability (with exceptions).  We don't want to interfere in your US politics and policies, but your antics have caused disruption, anxiety and alarm.  Your policies have caused disruption to our Malaysian economy at least since 2017.  Early this year, our previous PM called on Trump to resign.

https://www.scmp.com/news/asia/southeast-asia/article/3049857/malaysias-mahathir-i-asked-trump-resign-save-us

The need to de-dollarize, at least in our part of the world is getting urgent.  

https://www.nst.com.my/news/nation/2019/05/492341/malaysia-included-us-treasurys-currency-manipulator-list-economy

My worry is not only that the US is printing money with abandon. I am worried that the US may not be able to get its pandemic under control.  Here in Malaysia, we are under lockdown and we are quite disciplined about it unlike America.

I hope that Americans will listen to this message:

https://www.npr.org/sections/health-shots/2020/04/29/847755751/compared-to-china-u-s-stay-at-home-has-been-a-giant-garden-party-journalist-says

I would say this is the US's saving grace. Sweden has the most sensible Corona policy and apparently will have herd immunity in those under 65 in weeks. For those over 65 it is a bit trickier as they have to stay home, at least this allows most of the economy to function semi-normally. What the US govt. should be telling people is a consistent small rate of transmission is the aim at this point. Herd immunity can be attained in those under 65 and hospitals don't get overwhelmed if we just do what's already working elsewhere. These small gatherings will slowly spread the virus in a controllable way even if people don't think about it that way. A little civil disobedience goes a long way.

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1 hour ago, Strangelovesurfing said:

I would say this is the US's saving grace. Sweden has the most sensible Corona policy and apparently will have herd immunity in those under 65 in weeks. For those over 65 it is a bit trickier as they have to stay home, at least this allows most of the economy to function semi-normally. What the US govt. should be telling people is a consistent small rate of transmission is the aim at this point. Herd immunity can be attained in those under 65 and hospitals don't get overwhelmed if we just do what's already working elsewhere. These small gatherings will slowly spread the virus in a controllable way even if people don't think about it that way. A little civil disobedience goes a long way.

You should view this video.  Listen to what Thomas Friedman says at the end.  Basically, he agrees that Sweden has a sensible strategy for herd immunity and we will know whether they have done right in about 6 months.  The other approach is that taken by China for aggressive authoritarian containment until a vaccine is found.  He is worried that the US doesn't have a consistent strategy, but that you will eventually reach herd immunity anyway.  

 

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8 hours ago, 0R0 said:

China does it too, but since it controls the main banks, they are no different than the central bank as far as they are policy tools more than they are commercial operators.  

The government bonds are largely owned by the banks, meaning that they are pretty much monetized, The banks also own 150 Trillion Yuan of each other's "bonds" against which they printed up money. 

Chinese banks are commercially viable financial institutions. Actually 4 largest of them are globally largest by both assets and tier 1 capital.

Money printing - direct buying is needed when there is No demand for government bonds and Central bank needs to purchase them to actually prevent default.

In substance what happened in US EUrozone and Japan was a technical default of these countries on their government debts.

Default is another definition of QE.
I am curious how it would play out in the future ? I have not enough knowledge about banking ( I have Masters degree but No experience in industry ) to speculate.

On surface it looks like new normal. The only adverse consequence I see is that because price of money is subsidized by Central bank and so artificially depressed the right processes in the economy No longer can be conducted.

Natural circle of economic Darwinism is disrupted cause when money is virtually FREE it is very difficult even for bad , ill managed companies to bankrupt.

Other consequences I do not know.

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(edited)

On 4/29/2020 at 1:26 PM, 0R0 said:

The SDR is not going to work as planned because its relationship to outstanding debt is such that it will destroy the other currencies outside the creditor currencies JPY and Euro, driving the dollar down, and breaking the export economies. Besides which it will have a problem in that it puts global credit more tightly into London and NY jurisdictions as  it takes Yuan and Euro credit with it.

It will not buy 40 years. It will just implode immediately with enormous bid/ask ratios. 

The IMF has an anonymous SDR cryptocurrency network that can go around SWIFT. Which is the driver for the panic over the CV19 virus and the intensely perverse policy response to it of lockdowns, intended to wreck economies. That attack on the dollar is not going to work. The stronger likelihood path is Jim RicKard's "rip cord" policy response of the Fed and other CBs bidding up gold as their money printing mechanism rather than buying more debt which is just extending the imbalances over time. I would be surprised if the IMF isn't sidetracked into the ditch and its institutional existence comes into question.

 

You could be right.  It's all completely speculative. My point is that SDR's is a legit option that most people don't realize exists. 

https://www.businessinsider.com/the-sdr-is-poised-to-become-the-de-facto-global-reserve-currency-2016-9

Edited by Anthony Okrongly
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3 hours ago, Anthony Okrongly said:

You could be right.  It's all completely speculative. My point is that SDR's is a legit option that most people don't realize exists. 

https://www.businessinsider.com/the-sdr-is-poised-to-become-the-de-facto-global-reserve-currency-2016-9

Sure fire failure is obviously never a hindrance to global transnational institutions, so it is a possibility that they try. 

Kudlow is not expecting the dollar reserve system to be abandoned by the US. So that it leaves only the gold bid "rip cord" as Jim Rickards points out on occasion would solve the global debt problem. Which I tend to agree with. That maintains the official dollar standard while making gold part of the dollar money supply instantly. What you want to call the outcome is up to you, and I don't know that you can do much beyond that as it would be a defacto gold exchange standard within a dollar reserve system. Which is an odd one. The other CBs would be able to address their own debt overhang problems, which is much bigger than for the US relative to the economies, but much smaller relative to the debt pile (dollar debt pile includes a mountain of dollar debt of both developing and developed economies and an enormous amount of dollar paying derivatives). But the result of each with their own bid is that you have a fixed exchange rate system anchored in gold and reserved in both dollars and gold.  We know how that one works.

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