Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
The 5 Biggest Bubbles In Markets Today - 20th Sep 17
Infographic: The Everything Bubble Is Ready to Pop - 20th Sep 17
Americans Don’t Grasp The Magnitude Of The Looming Pension Tsunami That May Hit Us Within 10 Years - 20th Sep 17
Stock Market Waiting Game... - 20th Sep 17
Precious Metals Sector is on Major Buy Signal - 20th Sep 17
US Equities Destined For Negative Returns In The Next 7 Years - 3 Assets To Invest In Instead - 20th Sep 17
Looking For the Next Big Stock? Look at Design - 20th Sep 17
Self Employed? Understanding Business Insurance - 19th Sep 17
Stock Market Bubble Fortunes - 19th Sep 17
USD/CHF – Verification of Breakout or Further Declines? - 19th Sep 17
Blockchain Tech: Don't Say You Didn't Know - 19th Sep 17
The Fed’s 2% Inflation Target Is Pointless - 19th Sep 17
How To Resolve the Korean Conundrum  - 19th Sep 17
A World Doomed to a Never Ending War - 19th Sep 17
What is Backtesting? And Why You Need Backtesting System? - 19th Sep 17
These Two Articles Debunk The Biggest Financial Nonsense I See In The Media - 18th Sep 17
Bitcoin Price Crash 40% In 3 Days Underlining Gold’s Safe Haven Credentials - 18th Sep 17
The Sum of Risks – Global, Strategic, Political, and Financial - 18th Sep 17
The Netflix Of Canada’s Cannabis Boom - 18th Sep 17
Stock Market Sentiment Speaks: Either You Learn From The Events Of The Past Week, Or You Are Hopeless - 18th Sep 17
SPX 2500 … At Last! - 18th Sep 17
Inflation Lies, Lies and OMG More Lies - 18th Sep 17
How to Choose right Forex Trader? - 18th Sep 17
Who Has Shaped the World the Most? The Dozen Greatest Achievers - 17th Sep 17
Riding the ‘Slide’: Is This What the Next Stocks Bear Market Looks Like? - 17th Sep 17
Gold Up, Markets Fatigued As War Talk Boils Over - 17th Sep 17
Predicting the Future of the U.S. and the World - 16th Sep 17
Deceit in the Financial Food Chain - 16th Sep 17
Gold GLD ETF Investment Resuming - 16th Sep 17
Extreme Weather & Energy Markets: What's Next? - Video - 15th Sep 17
Trump’s Path to IP Wars - 15th Sep 17
GBP USD Approaches Fibonacci Target - 15th Sep 17
Higher US Interest Rates May Force Higher Inflation Rates - 15th Sep 17
Stock Market Investors: Taking the Road "Less Traveled" Has Its Perks - 15th Sep 17
The 3 Best P2P Lending Platforms For Investors In 2017—Detailed Analysis - 15th Sep 17
The US Debt Bubble Will Soon Warrant Serious Measures - 15th Sep 17
Why it is Often Difficult to Sell a House Fast - 15th Sep 17
S&P 500 At New Record High, Will It Break Above 2,500? - 14th Sep 17
Capital Market Trends - 14th Sep 17
Mike Maloney: The Top 10 Reasons I Own Gold and Silver - 14th Sep 17
The Only Real Europe is Greece - 14th Sep 17
7 Security Tips for Online Traders - 14th Sep 17

Market Oracle FREE Newsletter

5 Markets Ready to Move Before Year-End. Eexpert Analysis and New Trading Opportunities

End of U.S. Dollar Global Reserve Currency

Currencies / US Dollar Oct 15, 2009 - 10:46 AM GMT

By: Jim_Willie_CB

Currencies

Best Financial Markets Analysis ArticleThe heralded end to the Petro-Dollar defacto standard completes the loop, the vicious cycle that will work to destroy the USDollar. In a sense, the US$ had to face an end, its sunset guaranteed when Nixon defaulted on its redemption value. The United States served as custodian for the global reserve currency. Naturally, the most damage will be to the US as a consequence of its twilight, especially after the recent era of fraud & counterfeit. Few look back to that date in 1971 as prophetic for declaring the USDollar’s days as limited and finite.


The world will continue to trade the US$ in future years, but it must stand on its own value, based upon its own merit, the result of balancing its supply & demand, from the integrity of its fundamentals. Some climax events have come, or at least are previewed on an unfortunate path. Never in my memory has USGovt leadership been so disrespected. Never has Wall Street been so culpable for financial ruin, yet still in power running the USGovt finance ministries. The global revolt against the United States has many sides, but the financial aspect is most profound. It is hardly even covered in the US press. The US citizens have little comprehension of the enormity of a lost global reserve currency, with all its privileges, abused for constructing financial engineering towers and funding foreign wars. The direct effects will be felt in higher costs and assured supply, including credit.

No need to enter details, but the nation with each passing year resembles even more a very large Third World nation. Empty foreclosed homes, empty shopping malls, millions of jobless, discouraged business formation, nationalized failed firms, vanishing Middle Class, trillion$ federal deficits, monetized debt, reduced liberties, selective elite law enforcement, syndicate stronghold, huge prison population, controlled press networks, distrust of leaders, aggressive military, these are the characteristics that most people agree are unsavory. But when one takes them as a cornucopeia table display, they are described as Third World. This article will be shorter than most, since the more complete analysis is provided for Hat Trick Letter members. We are not fooled by the banter, the propaganda. We have been preparing for the surge in gold & silver, the powerful erosion in the USDollar, the ruin of the banks, the universal bust in bonds, the insolvency of the homeowners, and the army of jobless. Personal fortunes have by and large not been ruined. Some have thrived.

COMPLETED LOOP: FINANCIAL & COMMERCIAL

The swirling motion of the above loop is powerful. With the crude oil sales no longer taking US$ payments, the loop is completed. The financial engine in the Dollar Carry Trade now will have a commercial engine to further its momentum, to add power to the cycle, and force powerful lethal feedback reactions. Only when the financial and commercial sides fit like two giant interlocking pieces does the power take hold, much like a toilet assembled. The Fisk report on a 2018 timeframe for the phase out of US$ petro sales is more politically massaged information. The timetable will be just a couple years, doubtful more. The reactions from systems will force the timing to be much sooner, out of desire, out of necessity, due to broken systems that accelerate the breakdown process due to the announcement itself in feedback loops. By the way, the swirling motion in the vicious loop should remind people of a toilet being flushed. In the Northern Hemisphere, the motion is clockwise. Thus my representation, since my entire life has been spent roaming the north. To people reading from the Southern Hemisphere, imagine the elements of the graph in mirror image format. Thanks for the cooperation.

REDUCED US$ DEMAND IN FOREIGN BANKS

Entire foreign banking systems have been constructed with USTreasury Bonds serving as important assets in their foundations. The requirement was clear by virtue of payment for crude oil for Saudi and other OPEC nation crude oil. The Petro-Dollar standard required nations to prepare for payment in US$ terms, and thus build systems to make those payments. The banks act like giant ATM machines to dispense USDollars for oil payments. Many did so reluctantly. The purchase of crude oil is without doubt the largest and most important economic commodity purchased, next to food supply.

The demand for USDollars will be sharply reduced in the future. Payment for crude oil in IMF basket terms will reduce the need for holding all those USTreasurys. Banking systems will change their structural makeup. They will adapt to other non-US$ swap facilities that aid in trade. One should be on the lookout for outright refusal to accept USDollars, the next step. The toxic bonds could easily lead to perception of USTBonds being toxic as well.

FOREIGN RESERVES DIVERSIFICATION

Nations have been struggling to diversify their FOREX reserves for the last few years. They react to the fundamental problems of the USEconomy, the USGovt deficits, the US Bank insolvency, the US Home insolvency, the dismissal of US Industry, and the trend toward nationalization. The foreign managers of finance suddenly awakened in 2005 to find they had accumulated a surfeit of bonds in the form of USTBonds, USAgency Mortgage Bonds, and US Bank Corporate Bonds, with no semblance of balance in their portfolios. Add to their reserves the Sovereign Wealth Funds, and the magnitude of the problem was deemed unreasonable, unwise, and unacceptable, in need of change. So foreign finance accounts have been buying more EuroBonds, even Chinese Govt Bonds, more Gold, more commodity stockpiles, and more foreign assets that assure commodity supply. China leads the way in setting the standard in diversification practices.

USFED STUCK AT 0%

The USFed does the most talking about an end to its free money, also known as monetary easing. But the United States will be the last to raise interest rates, stuck without an Exit Strategy. Australia did not talk about it at all, but recently raised its rates by 25 basis points. Generally speaking, those who do too much speaking do too little doing. The crippled nature of the conditions in the United States dictate continued 0% easy money. The powerful players in the Dollar Carry Trade will ensure that the free money parade does not stop. It is self-sustaining. They will even influence the USFed not to hike rates. Furthermore, the next round of bank losses from commercial mortgages and prime Option ARMortgages will deliver big blows. Some astute analysts are already estimating the magnitude of the next round of bank losses. Any hike in interest rates would not only add costs to borrowers across the USEconomy, but add costs to the USGovt. They are, by the way, producing trillion$ deficits.

GROWING USGOVT DEFICITS

The endless series of stimulus for a moribund USEconomy, reduced payroll taxes collected as federal revenue, nationalized Black Hole costs (Fannie Mae, AIG, GM), current health care costs (Medicare), hidden banker welfare (TARP funds one pearl on a string), sacred military budget (contractor largesse & syndicate benefit), and stupid pork projects will continue to churn out gigantic mind-numbing federal deficits. The only reduction seen is in forecasts by official agencies, which bear little reflection to reality. The permanence of trillion$ deficits will be clear in another year. Removed stimulus, removed props, removed monthly special programs, these steps will cause a return to deteriorated conditions. The Clunker Bank and Clunker Home programs are well along.

USTBOND MONETIZATION

The USTreasury auctions are the biggest congame since the Wall Street mortgage bond sales, whose monetization eclipses the Weimar machine. The primary bond dealers are required to bid on USTreasurys that come to auction. They are reimbursed in Permanent Open Market Operations by the USFed within a week or so. The US press does not notice or does not report or is told to look the other way. The foreign central banks turn in their USAgency Mortgage Bond to the USFed, which with newly printed money buys the USTreasurys offered. These central banks use the sale proceeds and additional funds drawn from the Dollar Swap Facility to bid on USTreasurys that come to auction. The US press does not notice or does not report or is told to look the other way. The USGovt continually promises the foreign creditors that no monetization of debt will take place. They lie. The true victims are confidence and trust, essential to any fiat currency.

LOST CONFIDENCE IN USDOLLAR

Confidence is lost, never to return. It takes years to build confidence and trust, but only a few moments or days to lose it. Actions and developments in the last several years have contributed to a powerful and deep loss of confidence. In my view the mortgage bond fraud export combined with the Iraq & Afghan Wars to shatter respect, trust, and confidence. Nowadays, monetization worsens the lost faith as a crowning blow. Bully tactics by the US & UK for years added constant strain, producing resentment. The result is less support for the USDollar, and almost no cooperation for US$ and USTBond support programs outside the central bank franchise system.

A KEY IS THE JAPANESE YEN

As the Yen Carry Trade enters its final phase in wind-down, the Dollar Carry Trade will accelerate. Imagine, the global reserve currency in the US$ is used to fund a carry trade, from a Japanese handoff !!! The world has been turned upside down in its financial axis. No doubt about it. We live in a bond-driven world. National finances matter little compared to the interest rate yield offered to financial speculators, whose efforts are amplified by leverage. Take the Japanese, for example. Their trade surplus endured for 30 years. In the last year it vanished. Yet the Japanese Yen is rising versus the USDollar. The carry trade is seeing a grand handoff. The Dollar Carry Trade is a bond-driven phenomenon once again. Its power might be best seen in the Yen currency valuation, in its surprising rise. The Yen is analyzed in the October Hat Trick Letter report. The invitation for the USMilitary to depart Okinawa has some effect. The bond arbitrage has much more. The Japanese finance firms receive little attention. They are experts at running and exploiting the carry trades. They are switching programs.

If you believe all is well in Japan and Tokyo support will continue, then you miss the ‘Lost Lackey Effect’ from the last year. The Saudis will not carry the US bags any longer. The Arab squires will carry bags with Kremlin markings. The Japanese will not carry the US bags any longer. The Toyko squires will carry bags with Beijing markings. The chief strategist at a major Japanese bank Sumitomo today warned that the US$ might fall to 50 yen this year. That would be a 45% decline. Daisuke Uno at Sumitomo expects the USEconomy to suffer a second sudden recession. He said, “The US economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger. The dollar’s fall will not stop until there is change to the global currency system.” The strong warnings reflect the growing rift between Japan and the USA. The outcome of recent elections in Japan changed the entire bilateral landscape. The pro-American LDP party was ousted, a major new piece to the ongoing Paradigm Shift.

JUST THE BEGINNING FOR GOLD & SILVER

Gold reached 1060 this week, and silver touched 18. This is just the beginning. The pullbacks like today should be exploited to purchase more at discount. Purchases of gold at the London exchanges are being interfered with, due to basic problems of not having sufficient gold bullion to satisfy delivery demand, otherwise known as DEFAULT. Reports arrived privately cite the LBMA officials offering 25% more than contract value if high volume gold futures contracts are settled in cash. Two different central banks are scrambling to locate gold for the contracts, but much of it is substandard bullion with under 90% purity. Sounds like a default is right around the corner, and some members have their nether stones caught in a vise. CLEAR EVIDENCE SCREAMS OF GOLD HAVING A $1300 CURRENT PRICE.

The next target for gold is 1130, with a midterm target of 1300.

The next target for silver is 19 with a midterm target of 26.

The Bank of England news today was comical. The central bank is the most disrespected on the planet, for inconsistency, wavering, desperation, and cluelessness. Their table pounding in desperate confusion caused a big 200-pt rally in the Pound Sterling versus the Euro. The chief loser currencies in the current phase will be the USDollar and British Pound Sterling. They are both used toilet paper, long spent in wiping an empire’s dirt.

A FINAL NOTE: See the King World News series on “Systemic Failure” in its four parts (CLICK HERE), where the Jackass is interviewed in a logical comprehensive argument. The fourth and final segment is to be posted before this weekend of October 17th. The King World News has had a stream of stellar guests from the highest tiers, that recently included Jim Sinclair, Gerald Celente, and Chris Whalen. See their front page for numerous interviews (CLICK HERE).

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

From subscribers and readers:

At least 30 recently on correct forecasts such as the Lehman Brothers failure, numerous nationalization deals such as for Fannie Mae, grand Mortgage Rescue, and General Motors.

“You freakin rock! I just wanted to say how much I love your newsletter. I have subscribed to Russell, Faber, Minyanville, Richebacher, Mauldin, and a few others, and yours is by far my all time favorite! You should have taken over for the Richebacher Letter as you take his analysis just a bit further and with more of an edge.” -   (DavidL in Michigan)

“I used to read your public articles, and listen to you, but never realized until I joined what extra and detailed analysis you give to subscription clients. You always seem to be far ahead of everyone else. It is useful to ‘see’ what is happening, and you do this far better than the economists! I can think of many areas in life now where the best exponent is somebody not trained academically in that area.” -    (JamesA in England)

“A few years ago, I was amazed at some of the stuff you were writing. Over time your calls have proved to be correct, on the money and frighteningly true. The information you report is provocative and prime time that we are not getting in the news. I was shocked when I read that the banks were going to fail in one of your prescient newsletters.” -    (DorisR in Pennsylvania)

“You seem to have it nailed. I used to think you were paranoid. Now I think you are psychic!” -  (ShawnU in Ontario)

“Your unmatched ability to find and unmask a string of significant nuggets, and to wrap them into a meaningful mosaic of the treachery-*****-stupidity which comprise our current financial system, make yours the most informative and valuable of investment letters. You have refined the ‘bits-and-pieces’ approach into an awesome intellectual tool.” -    (RobertN in Texas)

by Jim Willie CB
Editor of the “HAT TRICK LETTER”
Home: Golden Jackass website
Subscribe: Hat Trick Letter

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com

Jim Willie CB Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife