December 10, 2014 JC Collins Leave a comment
By JC Collins
The amnesty issue and immigration reform are symptomatic of the larger implosion of American culture and the transition away from micro empire to macro empire. In order to fully understand the scale and scope of what is transpiring on the socioeconomic and geopolitical spheres one must gain a deeper understanding of how the current situation and dynamics have been engineered and orchestrated.
All empires have been built around monetary policies and they crash alongside the corruption of those policies. In regards to the current state of world affairs, the transition away from one economic framework to the emergence of another represents the larger transformation of empire which is taking place in the world today.
The characteristics of the international monetary system since the early 1970’s can be defined as desperate attempts at maintaining the USD’s valuation. Whether contrived as an act of socioeconomic engineering or a reactionary position is somewhat irrelevant as the world now stands on the steep slope of transition away from a dollar centralized system.
The imbalances in the international monetary system have been used to leverage this transition towards a multilateral system where emerging markets, such as the BRICS countries, have more control and leverage over the metrics which determine whether there are economic balances or imbalances.
From the creation of the Bretton Woods system in 1944, through to its eventually fragmentation in the early 1970’s, the international financial system was configured around the parity of fixed exchanged rates. Foreign reserves acted as a last line of defense against attempts to shift the system away from the fixed exchange rate regime, as well as being the main source of international liquidity.
These “reserves” had the ability to be supplemented by resources from the International Monetary Fund through foreign exchange swap lines to counter speculation against fixed exchange parities. But still, the USD continued to be used as the main source of international liquidity, and was accumulated in vast amounts in the foreign reserve accounts of central banks around the world.
The point that world liquidity was connected to US balance of payments deficits meant that as economic growth expanded and once marginal reserve requirements increased dramatically the system became inherently dysfunctional. The world was faced with two choices, an inadequate supply of global liquidity, or continue to expand the USD in foreign reserve accounts around the world.
The latter was the preferred method of restructuring the Bretton Woods agreement as the USD removed its peg to gold in 1971 and the creation of what we call the “petro-dollar” was established in 1973.
OPEC was started in September of 1960, which was around the time frame when the first deficiencies in the US balance of payments as a source of global liquidity were first openly acknowledged. Throughout the 1960’s the oil producing countries around the world were brought into the dollar system and the energy alternative to the semi gold standard began.
Since 1973 there has been wanton desperation in the actions of central banks and the international institutions to maintain the dollars valuations as to prolong the balance of payments system. The financial crisis of 2008 was the just one event in a series of events which foretold of the coming liquidity crisis. The imbalances in the system caused by accumulating the USD in the foreign reserves accounts around the world are now beginning to manifest across the broader macro environment.
The most obvious solution to this dysfunction is to displace the USD in the foreign reserve accounts with a supplemental reserve currency such as the Special Drawing Right of the IMF. But like before, these IMF resources, the SDR, work best when there is parity as found in the fixed exchange rate structure which existed before the fragmentation of Bretton Woods in the early 1970’s.
The SDR would allow for the continued expansion of global growth and reserves without the dysfunction associated with the USD balance of payments system. These SDR’s can be distributed, or allocated, to members based on the quota amounts defined for each. In essence, the SDR can displace the USD as the global reserve asset without the imbalances found in a system centralized around one specific country and currency.
This is where the importance of the 2010 IMF Quota and Governance Reforms are brought to the forefront of international macroeconomics and geopolitical positioning. The reforms are meant to redefine the quota amounts of the emerging market countries, such as the BRICS countries, and more specifically China. With an increase in its quota amount, the People’s Bank of China will strengthen its position in the multilateral financial system and the broad and fast internationalization of the renminbi (RMB) will ensure its inclusion into the SDR basket of currencies by next July.
It is even likely that the SDR liquidity scenario may not even get traction without the RMB and broader reforms to the IMF governance and quota system. As such, we have watched for 4 years now as the reforms have languished in the American Congress without being implemented as required by the agreements made between the G20 countries in 2010.
This week Congress should be passing the spending bill which will fund the government for another year. There has been talk of having the IMF Reforms once again presented for vote as an attachment to the spending bill. If it isn’t, there will be the full implementation of Plan B which includes the removal of the US veto on the Executive Board and a larger quota adjustment for the emerging markets.
Reform to IMF governance and quota amounts are happening whether America agrees or not, with Plan B being the worst possible outcome.
One specific analysis can determine that the US delay is being orchestrated by China through political campaign funding directed towards the Republicans. China would benefit from delaying the full implementation of the Reforms so it has more time to strengthen its position and internationalize the RMB for inclusion into the SDR basket.
See post The Tail of the Dragon – How and Why China Delayed IMF Reforms Through Republican Party Donations
A second analysis could also suggest that the delay is orchestrated by Republican industrial interests for the purpose of weakening or outright preventing Russia from having a seat at the table. Russia has made its intentions known that it has been seeking to have the ruble included in the SDR basket along with the RMB.
In addition, the quota amounts for the Russian Federation would also be higher with the implementation of the 2010 Reforms as written, but could also be extremely larger if Plan B is utilized. With the control that Russia exerts over the European natural gas market, it is problematic for the American interests to allow the EU, and its quota allocations, to slide into the BRICS, and Russian economic influence.
The battle for Ukraine and the battle for Syria are both about the alliance between Europe and North America. Both are existing and potential pipeline routes for natural gas into Europe. The one in Ukraine is controlled by Russia and the one in Syria is slowly transitioning towards western control, with the help of ISIS and Israeli bombing campaigns.
For its part, Russia is playing a patient game and waiting for the inevitable time frame of IMF Reforms to be implemented. Whether through the 2010 Reforms as they were originally written, or through the implementation of Plan B, Russia is very aware that any overt provocation or reaction on its part would instantly be branded as the pretext for excluding the ruble from the SDR basket and lessening the Russian quota amount in the Fund.
Either analysis can be equally considered and the potential merging of both is also likely probable. The US Congress delays the reforms long enough to spoil Russian chances for an increased influence in the multilateral system and China plays both sides knowing that it will be the winner in the end because of the growing usage of the RMB and the Plan B structure.
America, trapped by the amount of USD held in the foreign reserve account of China, is willing to play ball with the PBoC, but cannot accept the full and balanced inclusion of both Russia and China into the multilateral financial system. With Russia on the doorstep of Europe the decision was fairly easy from an economic and geopolitical perspective.
The mandates from the Bank for International Settlements have trickled down to the central banks of the world and it has been made clear that USD liquidity based on the balance of payments system is coming to an end. Many times I have described how deflation and a broadening liquidity crisis would be used to herald in the multilateral financial system. Some of my earlier posts at the beginning of the year explained how methods of Hegelian Dialectic would be used to force the acceptance of the supra-sovereign system.
We have now been watching these methods, as presented in the form of civil unrest and protests, spread across the world and now back to the shores of America where the biggest transformation has to take place.
See post The Implosion of American Culture.
We have previously discussed how there would be massive fluctuations in the exchange rate markets in the days and weeks leading up to the transition. We are now seeing this in the dramatic swings in the currencies of the emerging economies, especially in Russia.
We have discussed the End of OPEC and the forthcoming SDR Commodities Exchange. And now with the recent drops in the valuation of energy we are beginning to hear the rumblings about the viability and relevancy of OPEC as an institution. Back on April 21, 2014, in the post The Greatest Game, I made the following statement, in response to a readers question about the price of oil:
“Looking at oil, we can assume that the price will be around $75.00 per barrel (really anywhere from $60.00 to $80.00)”
At that time crude oil was in the $104.00 range and the thought of -$80.00 or -$70.00 oil was unthinkable. And yet, here we are 8 months later and the price of oil is $63.00, the lower end of my spectrum at the time. It can be assumed that oil will eventually settle in the $75.00 range as stated, where the economics are balanced.
Also in the post the Greatest Game we discussed the coming adjustments to the stock markets around the world. Some of the headlines from just the last few days confirm the deepening deflation and liquidity crisis as well as the stock market adjustments that many have been anticipating.
Canadian stock market drops 500 points before recovering at a +300 loss.
Vietnam stocks drop amid oil price instability.
Greek stocks crash 13%, the single biggest drop since 1987. And of course the Greek protests return.
China stocks drop.
Japan stocks and bonds drop.
Baltic Dry Index drops below 1000.
BIS publishes a warning on liquidity.
Civil unrest continues to grow across the globe.
Venezuelan bonds crash to 1998 levels.
And Zero Hedge has put together an excellent metrics based post titled Markets Turmoiled As 5th Hindenburg Looms.
So much instability and manipulation is now at play in the world markets that numbers are swinging wildly from losses and back to gains again. This instability is building and expanding the script that the USD balance of payments system needs to be replaced with a more centralized SDR liquidity process which will balance the international financial system.
The end of all empires are stricken with not only the debasement of currency, but also an obsession for sex, and the promotion and propagation of sports and entertainment. The barbarians at our gates is found in the immigration policies and the multicultural propaganda which spews forth from our governments and international institutions.
The fact that the amnesty issue is at the forefront of American politics as the USD system nears its end is very symbolic of the “barbarians at the gate’ historical script.
Yet, I don’t see this as the end of an empire but the beginning of the world empire, as discussed in the post The Rise of the World Empire. The internationalization of America’s “empire culture” has ensured a continuation of the obsession with sex and the entrancement with reality television, as well as the multilateral sport of mixed martial arts, the Roman colosseum of today.
What the rest of the world doesn’t want will implode with the USD system.
The attempts at maintaining the valuation of the USD are coming to an end. The SDR replacement is simply a continuation of the fiat and fractional system of debt based money creation. America was never meant to be the apex, only a transition point to the multilateral. – JC
Thanks to: http://philosophyofmetrics.com