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The consequences of Russia and her Asian allies embracing gold backing for their currencies are poorly understood in western capital markets. This move could lead to the destruction of the global fiat currency system.

According to evidence which is widely ignored in western capital markets, a move by Russia to put a new trade settlement currency and possibly the rouble as well onto a new gold standard is becoming a certainty. As a weapon of mass fiat currency destruction, the timing is probably bound up in on-the-ground military considerations, which are already showing signs of escalating in Eastern Ukraine.

As well as using gold to undermine the western currency system, a return to a credible gold standard has significant advantages for Russia and for her allies in the Shanghai Cooperation Organisation, the Eurasian Economic Union, BRICS+, and all their commodity suppliers beyond Asia. At the same time, it would destroy the west’s fiat currencies and financial system.

This article explains how one part of the global economy can thrive while the other collapses.

Introduction

Recently, I have written about the signals emanating from Russia that President Putin is minded to re-adopt sound money by returning to some sort of gold standard. We do not yet know the details, but consider what he said at the St Petersburg International Economic Forum in June last year:

“Caught in the inflationary storm, many nations are asking, why bother exchanging goods for dollars and euros when they are losing value right before our eyes? Indeed, the economy of imaginary wealth is being inevitably replaced by the economy of real valuables and hard assets.

“According to the IMF, today’s global foreign currency reserves contain 7.1 trillion dollars and 2.5 trillion euros. And this money is depreciating at an annual rate of about 8%…

…click on the above link to read the rest…

A tale of two worlds

February 5, 2023

A tale of two worlds

In the war between the western alliance and the Asian axis, the media focus is on the Ukrainian battlefield. The real war is in currencies, with Russia capable of destroying the dollar.

So far, Putin’s actions have been relatively passive. But already, both Russia and China have accumulated enough gold to implement gold standards. It is now overwhelmingly in their interests to do so.

From Sergey Glazyev’s recent article in a Russian business newspaper, it is clear that settlement of trade balances between members, dialog partners, and associate members of the Shanghai Cooperation Organisation (SCO) optionally will be in gold. Furthermore, the Russian economy would benefit enormously from a decline in borrowing rates from current levels of over 13% to a level more consistent with sound money.

To understand the consequences, in this article the comparison is made between the western alliance’s fiat currency and deficit spending regime and the Russian-Chinese axis’s planned industrial revolution for some 3.8 billion people in the SCO family. China has a remarkable savings rate, which will underscore the investment capital for a rapid increase in Asian industrialisation, without inflationary consequences.

With a new round of military action in Ukraine shortly to kick off, it will be in Putin’s interest to move from passivity to financial aggression. It will not take much for him to undermine the entire western fiat currency system — a danger barely recognised by a gung-ho NATO military complex.

Introduction

In the geopolitical tussle between the old and new hegemons, we see the best of strategies and the worst of strategies, where belief is pitted against credulity. It is the season of light and the season of darkness, the spring of hope and the winter of despair…

…click on the above link to read the rest…

The evolution of credit and debt in 2023

January 15, 2023

The evolution of credit and debt in 2023

The evidence strongly suggests that a combined interest rate, economic and currency crisis for the US and its western alliance will continue in 2023.

This article focuses on credit, its constraints, and why quantitative easing has already crowded out private sector activity. Adjusting M2 money supply for accumulating QE indicates the degree to which this has driven the US tax base into deep recession. And the wider effects on credit in the economy should not be ignored.

After a brief partial recovery from the covid crisis in US government finances, they are likely to start deteriorating again due to a deepening recession of private sector activity. Funding these deficits depends on foreign inward investment flows, which are faltering. Rising interest rates and an ongoing bear market make funding from this source hard to envisage.

Meanwhile, from his public statements President Putin is fully aware of these difficulties, and a consequence of the western alliance increasing their support and involvement in Ukraine makes it almost certain that Putin will take the opportunity to push the dollar over the edge.

Credit is much more than bank deposits

Economics is about credit, and its balance sheet twin, debt. Debt is either productive, in which case it can extinguish credit in due course, or it is not, and credit must be extended or written off. Money almost never comes into it. Money is distinguished from credit by having no counterparty risk, which credit always has. The role of money is to stabilise the purchasing power of credit. And the only legal form of money is metallic; gold, silver, or copper usually rendered into coin for enhanced fungibility.

…click on the above link to read the rest…

Inflation, recession, and declining US hegemony

December 24, 2022

Inflation, recession, and declining US hegemony

In the distant future, we might look back on 2022 and 2023 as pivotal years. So far, we have seen the conflict between America and the two Asian hegemons emerge into the open, leading to a self-inflicted energy crisis on the western alliance. The forty-year trend of declining interest rates has ended, replaced by a new rising trend the full consequences and duration of which are as yet unknown.

The western alliance enters the New Year with increasing fears of recession. Monetary policy makers face an acute dilemma: do they prioritise inflation of prices by raising interest rates, or do they lean towards yet more monetary stimulation to ensure that financial markets stabilise, their economies do not suffer recession, and government finances are not driven into crisis?

This is the conundrum that will play out in 2023 for the US, UK, EU, Japan, and others in the alliance camp. But economic conditions are starkly different in continental Asia. China is showing the early stages of making an economic comeback. Russia’s economy has not been badly damaged by sanctions, as the western media would have us believe. All members of Asian trade organisations are enjoying the benefits of cheap oil and gas while the western alliance turns its back on fossil fuels.

The message sent to Saudi Arabia, the Gulf Cooperation Council, and even to OPEC+ is that their future markets are with the Asian hegemons. Predictably, they are all gravitating into this camp. They are abandoning the American-led sphere of influence.

2023 will see the consequences of Saudi Arabia ending the petrodollar. Energy exporters are feeling their way towards new commercial arrangements in a bid to replace yesterday’s dollar. There’s talk of a new Asian trade settlement currency…

…click on the above link to read the rest…

Geopolitics: the world is splitting into two

August 22, 2022

Geopolitics: the world is splitting into two

While we are being distracted by Ukraine, President Putin has advanced his geopolitical goals materially. Aided and abetted by President Xi, Putin is taking the Asian continent into his control. That mission is well on its way to being achieved. He now awaits the winter months to finally force the EU to reject America’s hegemony. Only then, will the western end of the Eurasian continent be truly free of American interference.

This article explains how he is achieving his strategic goals. It examines the geopolitics of the Asian landmass and the nations tied to it, which are commercially and financially turning their backs on the US-led western alliance.

I look at geopolitics from President Putin of Russia’s viewpoint, since he is the only national leader who seems to have a clear grasp of his long-term objectives. His active strategy conforms closely with Halford Mackinder’s predictive analysis of nearly 120 years ago. Mackinder is regarded by many experts as the founder of geopolitics.

Putin is determined to remove the American threat to his Western borders by squeezing the EU to that end. But he is also building political relationships based on control of global fossil-fuel supplies — a pathway opened for him by American and European obsessions over climate change. In partnership with China, the consolidation of his power over the Eurasian landmass has progressed rapidly in recent weeks.

For the Western Alliance, financially and economically his timing is particularly awkward, coinciding with the end of a 40-year period of declining interest rates, rising consumer price inflation, and a deepening recession driven by contracting bank credit.

It is the continuation of a financial war by other means, and it looks like Putin has an unbeatable hand. He is on course to push our fragile fiat currency based financial system over the edge.

…click on the above link to read the rest of the article…

The evolution of credit

March 19, 2022

The evolution of credit

After fifty-one years from the end of the Bretton Woods Agreement, the system of fiat currencies appears to be moving towards a crisis point for the US dollar as the international currency. The battle over global energy, commodity, and grain supplies is the continuation of an intensifying financial war between the dollar and the renminbi and rouble.

It is becoming clear that the scale of an emerging industrial revolution in Asia is in stark contrast with Western decline, a population ratio of 87 to 13. The dollar’s role as the sole reserve currency is not suited for this reality.

Commentators speculate that the current system’s failings require a global reset. They think in terms of it being organised by governments, when the governments’ global currency system is failing. Beholden to Keynesian macroeconomics, the common understanding of money and credit is lacking as well.

This article puts money, currency, and credit, and their relationships in context. It points out that the credit in an economy is far greater than officially recorded by money supply figures and it explains how relatively small amounts of gold coin can stabilise an entire credit system.

It is the only lasting solution to the growing fiat money crisis, and it is within the power of at least some central banks to implement gold coin standards by mobilising their reserves.
Evolution or revolution?

There are big changes afoot in the world’s financial and currency system. Fiat currencies have been completely detached from gold for fifty-one years from the ending of the Bretton Woods Agreement and since then they have been loosely tied to the King Rat of currencies, the dollar. Measured by money, which is and always has been only gold, King Rat has lost over 98% of its relative purchasing power in that time…

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When normality is exposed as a Ponzi

March 5, 2022

When normality is exposed as a Ponzi

Putin’s hubris, yes-men for generals, lack of fighting conviction among the men, poor logistics and strong Ukrainian leadership and determination have combined to turn the Russian invasion of Ukraine into a military quagmire.

Meanwhile, the West has upped the stakes in a financial war. The underlying assumption is that the Russian economy is weak and those of the Western allies are stronger. A few key metrics shows this is incorrect. The underlying resilience of the Russian economy and its financial system is not generally understood, and instead EU sanctions could end up undermining the whole euro system and the euro itself.

This article looks at how errors on the battlefield are likely to bring the financial and economic war between the West and Russia out into the open. By suspending access to them, the West has made the mistake of proving to Russia (and all other national central banks) the ultimate uselessness of currency reserves and the benefits of gold. As well as leading to the likely collapse of the entire euro system, this article explains how this financial war could end up with a de facto gold standard for the rouble and call an end for the entire fiat currency Ponzi scheme.

The destruction of the global fiat Ponzi scheme is a step closer

Being increasingly debased, western currencies serve to conceal deteriorating economic conditions, particularly in the US, EU, UK, and Japan. In China, less so perhaps. But China faces an old-fashioned property crisis which is sure to lead to further currency expansion and therefore, debasement of the renminbi. In this article about the state of the financial war between the US, UK and EU on one side, collectively the West, and Russia on the other, we focus on how the invasion of Ukraine is evolving into open financial warfare.
…click on the above link to read the rest of the article…

Money supply and rising interest rates

January 8, 2022

Money supply and rising interest rates

The establishment, including the state, central banks and most investors are thoroughly Keynesian, the latter category having profited greatly in recent decades from their slavish following of the common meme.

That is about to change. The world of continual Keynesian stimulus is coming to its inevitable end with prices rising beyond the authorities’ control. Being blinded by neo-Keynesian beliefs, no one is prepared for it.

This article explains why interest rates are set to rise substantially in this new year. It draws on evidence from the inflation crisis of the 1970s, points out the similarities and the fact that currency debasement today is far greater and more global than fifty years ago. In the UK, half the current rate of monetary inflation for half the time — just for one year — led to gilt coupons of over 15%. And today we have Fed watchers who can only envisage a Fed funds rate climbing to 2% at most…

A key factor will be the discrediting of this Keynesian hopium, likely to be replaced by a belated conversion to the monetarism that propelled Milton Friedman into the public eye when the same thing happened in the mid-seventies. The realisation that inflation is always and everywhere a monetary phenomenon will come too late for policy makers to stop it.

The situation is closely examined for America, its debt, and its dollar. But the problems do not stop there: the risks to the global system of fiat currencies and credit from rising interest rates and the debt traps that will be sprung are acute everywhere.

…click on the above link to read the rest of the article…

Gold and silver prospects for 2022

December 27, 2021

Gold and silver prospects for 2022

It has been a disappointing year for profit-seeking precious metal investors, but for those few of us looking to accumulate gold and silver as the ultimate insurance against runaway inflation it has been an unexpected bonus.

After reviewing the current year to gain a perspective for 2022, this article summarises the outlook for the dollar, the euro, and their financial systems. The key issue is the interest rate outlook, and how that will impact financial markets, which are wholly unprepared for the consequences of the massive expansions of currency and credit over the last two years.

We look briefly at geopolitical factors and conclude that Presidents Putin and Xi have assessed President Biden and his administration to be fundamentally weak. Putin is now driving a wedge between the US and the UK on one side and the pusillanimous, disorganised EU nations on the other, using energy supplies and the massing of troops on the Ukrainian border as levers to apply pressure. Either the situation escalates to an invasion of Ukraine (unlikely) or America backs off under pressure from the EU. Meanwhile, China will continue to build its presence in the South China Sea and its global influence through its silk roads. Less appreciated is that China and Russia continue to accumulate gold and are ditching the dollar.

And finally, we look at silver, which is set to become the star performer against fiat currencies, driven by a combination of poor liquidity, ESG-driven industrial demand and investor realisation that its price has much catching up to do compared with lithium, uranium, and copper. The potential for a fiat currency collapse is thrown in for nothing.
2021 — That was the year that was

This year has been disappointing for precious metals investors. Figure 1 shows how gold and silver have performed since 31 December 2020.

…click on the above link to read the rest of the article…

The Futility of Central Bank Policy

November 22, 2021

THE FUTILITY OF CENTRAL BANK POLICY

It is only now becoming clear to the investing public that the purchasing power of their currencies is declining at an accelerating rate. There is no doubt that yesterday’s announcement that the US CPI rose by 6.2%, compared with the longstanding 2% target, came as a wake-up call to markets.

Along with the other major central banks, the Fed’s reaction is likely to be to double down on interest rate suppression to keep bond yields low and stock valuations intact. The alternative will lead to a major financial, economic and currency shock sooner rather than later.

This article introduces the reader to some of the basic fallacies behind state currencies. It explains the misconceptions policy planners have over interest rates, and how central banks have become contracyclical lenders, replacing commercial banking’s credit creation for non-financial activities.

In effect, narrow money is being used by the major central banks in a vain attempt to shore up government finances and economic activity. The consequences for currency debasement are likely to be more immediate and profound than cyclical bank credit expansion.

Introduction

It is becoming clear that there has been an unofficial agreement between the US Fed, Bank of England, the ECB and probably the Bank of Japan not to raise interest rates. It is confirmed by remarkably similar statements from the former three in recent days. When, as the cliché has it, they are all singing off the same hymn sheet, those of us not party to agreements between our monetary policy planners are right to suspect they are doubling down on a market rigging exercise encompassing all financial markets.

…click on the above link to read the rest of the article…

Waypoints on the road to currency destruction — and how to avoid it

October 30, 2021

Waypoints on the road to currency destruction — and how to avoid it

The few economists who recognise classical human subjectivity see the dangers of a looming currency collapse. It can easily be avoided by halting currency expansion and cutting government spending so that their budgets balance. No democratic government nor any of its agencies have the required mandate or conviction to act, so fiat currencies face ruin.

These are some waypoints to look for on the road to their destruction:

Monetary policy will be challenged by rising prices and stalling economies. Central banks will almost certainly err towards accelerating inflationism in a bid to support economic growth.
The inevitability of rising bond yields and falling equity markets that follows can only be alleviated by increasing QE, not tapering it. Look for official support for financial markets by increased QE.
Central banks will then have to choose between crashing their economies and protecting their currencies or letting their currencies slide. The currency is likely to be deemed less important, until it is too late.
Realising that it is currency going down rather than prices rising, the public reject the currency entirely and it rapidly becomes valueless. Once the process starts there is no hope for the currency.

But before we consider these events, we must address the broader point about what the alternative safety to a fiat collapse is to be: cryptocurrencies led by bitcoin, or metallic money to which people have always returned when state fiat money has failed in the past.
Introduction

When expected events begin to unfold, they can be marked by waypoints. These include predictable government responses, and the confused statements of analysts who are unfamiliar with the circumstances. We see this today in the early stages of an inflation that threatens to become a terminal cancer for fiat currencies.
…click on the above link to read the rest of the article…

A tale of two civilisations

October 24, 2021

A tale of two civilisations

In recent years, America’s unsuccessful attempts at containing China as a rival hegemon has only served to promote Chinese antipathy against American capitalism. China is now retreating into the comfort of her long-established moral values, best described as a mixture of Confucianism and Marxism, while despising American individualism, its careless regard for family values, and encouragement of get-rich-quick financial speculation.

After America’s defeat in Afghanistan, the geopolitical issue is now Taiwan, where things are hotting up in the wake of the AUKUS agreement. Taiwan is important because it produces two-thirds of the world’s computer chips. Meanwhile, the large US banks are complacent concerning Taiwan, preferring to salivate at the money-making prospects of China’s $45 trillion financial services market.

The outcome of the Taiwan issue is likely to be decided by the evolution of economic factors. China is protecting herself against a global credit crisis by restraining its creation, while America is going full MMT. The outcome is likely to be a combined financial market and dollar crisis for America, taking down its Western epigones as well. China has protected herself by cornering the market for physical gold and secretly accumulating as much as 20,000-30,000 tonnes in national reserves.

If the dollar fails, which without a radical change in monetary policy it is set to do, with its gold-backing China expects to not only survive but be able to consolidate Taiwan into its territory with little or no opposition.

Introduction

On the one hand we have America and on the other we have China. As civilisations, America is discarding its moral values and social structures while China is determined to stick with its Confucian and Marxist roots. America is inclined to recognise no other civilisations as being civilised, while China’s leadership has seen America’s version and is rejecting it…
…click on the above link to read the rest of the article…

Economic Theory and Long-Wave Cycles

October 8, 2021

ECONOMIC THEORY AND LONG-WAVE CYCLES

Investors and others are confused by the early stages of accelerating price inflation. One misleading belief is in cycles of industrial production, such as Kondratieff’s waves. The Kondratieff cycle began to emerge in financial commentaries during the inflationary 1970s, along with other wacky theories. We should reject them as an explanation for rising prices today.

This article explains why the only cycle that matters is of bank credit, from which all other cyclical observations should be made. But that is not enough, because on their own cycles of bank credit do not destroy currencies — that is the consequence of central bank policies and the expansion of base money.

The relationship between base money and changes in a currency’s purchasing power is not mechanical. It merely sets the scene. What matters is widespread public perceptions of how much spending liquidity is personally needed. It is by altering the ratio of currency-to-hand to anticipated needs that purchasing power is radically altered, and in the earliest stages of a hyperinflation of prices it leads to imbalances between supply and demand, resulting in the panic buying for essentials becoming evident today.

Panics over energy and other necessities are only the start of it. Unless it is checked by halting the expansion of currency and credit, current dislocations will slide rapidly into a wider flight from currency into real goods — a crack-up boom.

Introduction

For eighteen months, the world has seen a boom in commodity prices, which has inevitably led to speculation about a new Kondratieff, or K-wave. Google it, and we see it described as a long cycle of economic activity in capitalist economies lasting 40—60 years. It marks periods of evolution and correction driven by technological innovation.[i]

…click on the above link to read the rest of the article…

The Great Game moves on

September 26, 2021

The Great Game moves on

Following America’s withdrawal from Afghanistan, her focus has switched to the Pacific with the establishment of a joint Australian and UK naval partnership.

The founder of modern geopolitical theory, Halford Mackinder, had something to say about this in his last paper, written for the Council on Foreign Relations in 1943. Mackinder anticipated this development, though the actors and their roles at that time were different. In particular, he foresaw the economic emergence of China and India and the importance of the Pacific region.

This article discusses the current situation in Mackinder’s context, taking in the consequences of green energy, the importance of trade in the Pacific region, and China’s current deflationary strategy relative to that of declining western powers aggressively pursuing asset inflation.

There is little doubt that the world is rebalancing as Mackinder described nearly eighty years ago. To appreciate it we must look beyond the West’s current economic and monetary difficulties and the loss of its hegemony over Asia, and particularly note the improving conditions of the Asia’s most populous nations.

Introduction

Following NATO’s defeat in the heart of Asia, and with Afghanistan now under the Taliban’s rule, the Chinese/Russian axis now controls the Asian continental mass. Asian nations not directly related to its joint hegemony (not being members, associates, or dialog partners of the Shanghai Cooperation Organisation) are increasingly dependent upon it for trade and technology. Sub-Saharan Africa is in its sphere of influence. The reality for America is that the total population in or associated with the SCO is 57% of the world population. And America’s grip on its European allies is slipping.
…click on the above link to read the rest of the article…

The funny-money game

September 18, 2021

The funny-money game

The sense of general unease that I detect among those I meet and discuss economics and financial matters with is increasing —with good reason. Clearly, what everyone calls inflation, rising prices or more accurately currency debasement, will lead to higher interest rates, threatening markets which are unmistakably in bubble territory.

The consequences of rising prices and interest rates are still being badly underestimated.

In this article I get to the source of the inflation problem, which is the monetary debasement of the dollar and other major currencies. An important part of the problem is that mathematical economists have lost sight of what their beloved statistics represent —none more so than with GDP.

I explain why GDP is simply the total of accumulating currency and credit which is wrongly taken reflect economic progress – there being no such thing as economic growth. Once that point is grasped, the significance of this basic error becomes clear, and the fiat currency paradigm is revealed for what it is: a funny-money game that will go horribly wrong.

There is only one escape from it, and that is to own the one form of money that is no one’s counterparty risk; the one form of money that always comes to humanity’s rescue when fiat fails.

And that is gold. It is neglected by nearly everyone because it is the anti-bubble. The more that people believe in fiat-denominated assets, the less they believe in gold. That is until their funny-money games implode, inevitably triggered by sharply rising interest rates.
Introduction

Those of us with grey hairs gained in financial markets can, or should, recognise that after fifty years the funny-money game is ending. Accelerated money printing has led to what greenhorn commentators call inflation…
…click on the above link to read the rest of the article…

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