South Africa joins in on attack on US Dollar trade currency status

Beware, the worldwide attacks on hallowed status of American Dollar continue! These ought to be huge concerns for ordinary citizens with savings in this currency, as well as whatever investors are left hoarding their reserves in this currency. From today's headlines:

Brics move to unseat [US] dollar as trade currency

SOUTH Africa will this week take some initial steps to unseat the US dollar as the preferred worldwide currency for trade and investment in emerging economies.

Thus, the nation is expected to become party to endorsing the Chinese currency, the renminbi, as the currency of trade in emerging markets.

This means getting a renminbi-denominated bank account, in addition to a dollar account, could be an advantage for African businesses that seek to do business in the emerging markets.

The move is set to challenge the supremacy of the US dollar. This, experts say, is the latest salvo in the greatest worldwide currency war since the 1930s.

A short while ago I blogged about use of gold as currency for transactions between India and Iran. If these trends continue, it can only be a matter of time the attacks will move from "trade currency status" to "reserve currency status".

There already are serious grumbling concerns about multi-route transfer(s) of funds from Federal Reserve to Bank of England to European Central Bank, eventually being used for bailouts in countries such as Greece. Since it's not fully disclosed how much such mischievous activity has contributed to devaluation of American dollar, it is hard to fault countries like South Africa on looking for alternatives for this currency.

As I said, these are SERIOUS warning signs from around the globe. But meanwhile, mainstream American media continue with their charade and mainstream American populace continues to stay sound asleep in its catatonic trance.

Multiple International/Domestic Currency Pressure Points

I also received some private messages regarding US Dollar currency pressure issues in current events, which I quickly wanted to get out of the way.

From earlier this month, March 7, 2012 :

Silver investment demand in China soars

‘You have the Chinese sitting on a store of $2.5 trillion US of which they know is completely useless, so I think they are looking at gold, but also at silver as a store of value and a way to hedge against the decline of the US dollar,’...

China and India are the largest silver marketplaces globally. While unprecedented constructions and setting up of new factories are driving up the industrial demand for silver, rising gold prices is forcing people to opt for silver jewellery in place of gold jewellery.

And also from around the same time earlier this month, March 8, 2012 :

Reputed American investor Jim Rogers is very well known to be pessimistic on American Dollar and mounting sovereign debt. He is a strong critic of wasteful American foreign policy. This policy spends too much money on unconstitutional militarism (being policemen of the world), and has very little to do specifically with defense of American borders against foreign invasions. This is quite a sobering assessment indeed.

Jim Rogers predicts lost decade ahead

“Prepare for another lost decade.” Due to the easy money policies of global central bankers, there will be little if any economic growth in the years ahead.

Weak currency policies will result in higher inflation, and the unwillingness of global authorities — particularly the United States — to take needed steps has made Rogers gloomy.

In the case of the United States, eventually the Federal Reserve will be unable to maintain its low interest rate policies or finance the federal deficit by expanding its balance sheet. When this happens, Treasury bonds will have to compete for investment capital at market interest rates. This will send mortgages higher, devastating the real estate sector. Equities will suffer as fixed income instruments will offer much higher yields, as in the 1980s.

Woodrow Wilson "re-incarnated Clone" threatens India with sanctions over Iran Cold War?!

It has been my policy to stay out of clearly "political/partisan" rants on this blog on principle. But I have to make an exception today. It's very difficult to completely hide from it when matters reach this level/magnitude, so here goes.

In response to my last blog post (Iran coldwar affront to dubiously hallowed territory of US Dollar "World Reserve Currency" status) : Someone sent me a private message about a headline from exactly 1 week ago. It had somehow gone underneath my radar, but it is extremely relevant and I'm going to vent very strongly.

U.S. May Sanction India Over Level of Iran Oil Imports

India has failed to reduce its purchases of Iranian oil, and if it doesn’t do so, President Barack Obama may be forced to impose sanctions on one of Asia's most important nations, Obama administration officials said yesterday.

If India fails to cut Iranian imports sufficiently, Obama may be compelled to bar access to the U.S. banking system for any Indian bank processing oil payments through Iran’s central bank, the U.S. officials said.

Continuation from yesterday:

Hillary Clinton Names Iran Sanctions Waiver Recipients

U.S. Secretary of State Hillary Clinton announced Tuesday 11 countries that have received waivers from tough sanctions on Iran.

The nations – Belgium, Czech Republic, France, Germany, Greece, Italy, Japan, the Netherlands, Poland, Spain and the U.K.– reduced their oil purchases from Iran significantly enough that financial institutions based there won’t be frozen out of the U.S., as per legislation signed into law Dec. 31.

So, here we have an administration of the re-incarnated Woodrow Wilson "Ivy Leaguer clone". He happens to be nothing but a spokesperson puppet for Federal Reserve and private banking industry, a stark facade just like several presidents before him. His administration is threatening other nations like India in matters of free-trade with some other nations. Surely, sovereign nations like China and Russia are implicitly lumped in that list with India as well. As maintained earlier, such restrictions would raise oil prices worldwide. It would cause untold hardships to too many people all over the planet, not just people in India, Iran or USA.

On what authority are these "holier than thou" threats being made? By becoming arbitrary policemen of the world? Quite certainly, they're not under guidelines of US Constitution. There is no clause in the US Constitution which dictates anything about what trade India or China can have with Iran, and vice versa. As a matter of fact, our founders worked diligently to produce a minimal yet complete Constitution that was clear in foreign policy matters. John Quincy Adams (who was technically not a founder, but son of a founder - yet later, a statesman in his own right nonetheless) helped influence the "No Entangling Alliances" part of foreign policy. It ended up being incorporated in George Washington's famous "Farewell Address". Nor are the threats being made under guidelines of Constitution of India or Constitution of Iran.

Some 220+ years later, we have administrations commiting egregious sins such as:

• "Weapons of Mass Destruction" lies to launch unconstitutional war on a nation that had not attacked us.
• "Banks Too Big to Fail" lies for unconstitutional taxpayer funded bailouts of private banks which deserved to collapse under free market principles.
• Continuing a nebulous occupation in Afghanistan with serial heavy blunders in terms of human life and material costs - least of which is burning taxpayer money during bad economic times and mounting debt back home - that nobody has any clarity on its exact objective anymore.

Given that there are serious moral failings of such high magnitude with itself, it should be imperative for US administration to work on improving upon them; to rein in within its own rule of law - the US Constitution. Instead, we see an uncomfortable situation of an administration lacking moral fiber giving hypocritical sermon from a bully pulpit to the rest of the planet.

And heaven knows, not all matters are nice and clean in India either. But this rant is not about that at all. Rampant corruption at high and low rungs of society, corrupt and crony corporate welfare of big magnitudes, an anti-corruption revolutionary movement under Anna Hazare's leadership - these are all well documented facts. But these are internal matters for the Indian population and Indian government to deal with. The premise of my rant here is Indian government looking out for interests of its population, their energy needs and doing free-market trade with Iran for those exact purposes. Iran has not threatened India in any manner, nor has India threatened Iran in any manner. They are both perfectly justified in seeking mutual trade and minding their business. Being threatened with "sanctions" by a third nation over such trade matters invoking a questionable "International Law" reeks of hypocrisy.

Woodrow Wilson administration was involved in a mess of identical nature. Exactly 100 years ago, US Presidential Election of 1912 was one of the most rigged elections in history till that date. Efforts for formation of a central banking authority [much maligned Senator Aldritch bill] had bitterly failed during earlier Taft administration. The private banking cartel would not give up and tenaciously located "Woodrow Wilson"  - a polished Ivy League professor - as a puppet for their objectives. An already retired Teddy Roosevelt installed a questionable new socialist party called "Bull Moose Progressive Party" and bizarrely jumped into the election campaign - while there already was another socialist candidate representing the Communist Party! As later events would prove, Teddy Roosevelt was funded by the banking lobby to divide up votes and take revenge on reelection efforts of incumbent Taft. The banking cartel was extremely motivated come hell or high water to achieve their objective of defeating Taft, and installing Woodrow Wilson as their puppet. They certainly did not waste any time, giving birth to the infamous Federal Reserve during Wilson's first term. Ever since then, for close to 100 years the Fed has been responsible for engineering boom and bust cycles, triggering recessions and a depression, funding perpetual belt of welfare/warfare, and helping install international hegemonies of World Bank, IMF, United Nations etc.

Under the guise of "avoiding involvement in WWI international conflict", Wilson was reelected in 1916. Following are well-known legacies from his second term, which are all water under the bridge.

• American involvement in WWI.
• Creation of "League of Nations" as the inaugural bully pulpit, giving Woodrow Wilson and United States a license for enforcing "international law".
• The disastrous Treaty of Versailles, which in fact ended up becoming a catalyst for WWII! The entire package of "Fourteen Points" of "progressive neo-liberal neo-conservative Idealism" hogwash. This essentially has been the gospel of downstream US interventionist foreign policy, illustrated by disasters such as Vietnam War, Iraq wars etc.
• King-Crane commission as response to uniateral Sykes-Picot (British/French) agreement. The proposal of that commission was American occupation of Middle-East, which didn't end up being implemented. To this day, the volatality in Middle East remains unresolved. One could argue that perpetually alive volatality benefits Military Industrial Complexes.

The WWI participation would not have been possible without existence of Federal Reserve and its global interlinking with other central banks such as Bank of England. It is also not a coincidence that enforcement of US Constitution progressively became an afterthought and hinderance during Federal Reserve's existence as years went by.

Roughly 100 years later, the US Constitution has been undermined to such a degree that it has been reduced to a worthless piece of document. Again, we have a president with Ivy League polished connections as a puppet mouthpiece for private banking cartel. During his first term, the Woodrow Wilson clone has also helped private banking industry with their goals come hell or high water - unconstitutional bailouts after criminal behavior during prior president's term. The administration has also shown open contempt for free-market principles and fundamentals of capitalism in many different ways during this term. Also notice international conflicts being on the forefront during this Woodrow Wilson clone's reelection efforts, just like Woodrow Wilson of 100 years ago. And throw in the bully pulpit of international law, sticking nose in other nations' business about their affairs, disregard for US Constitution, and voila! We have a disastrous recipe for repeat of unfortunate global events from roughly 100 years ago. You couldn't make this stuff up, if you sat in a laboratory and strived to replicate it. It's almost as if the script is being followed to the last detail, even after 100 years.

The big difference this time around is, US has a crushing debt owed to China. It's almost coming upto "emperor has no clothes" scenario. India, China and Russia - all of whom have interests of doing trade with Iran - have possessions of nukes. As a matter of fact, throw in India's bitter rival in other matters from the neighborhood, Pakistan - and they have nukes too. Pakistan have had their own issues to deal with, with disenfranchisement of their population, corrupt/dictatorial regimes being kept alive with unconstitutional US aid and all sorts of chaotic mess of extreme complexity.  When it comes to dealing with Iran related sanctions however, I can't see why China, India, Russia and Pakistan (all 4 nations with nukes) cannot form a coalition. All of them should be able to trade with Iran on their respective terms, according to the needs of their populations if they want to. A coalition of such magnitude could put brakes on escalation of international conflict and avoid repeat of unfortunate horror from 100 years ago.

Addendum:

1. It's clear teachings of basic economics / history / political science have been hijacked, and manipulated. Discussion of history has always been biased, whether in school textbooks or media to suit canned goals. Why do you think everyone on US TV channels keeps talking about Ayatollahs, but nobody knows about Mohammad Mossadeq? Economic theories of Keynes are taught like Gospel in business schools, as if there is no other alternative.
2. James Madison, one of the founders & the key architect of US Constitution left us with a warning. According to him, the Constitution was merely a working document. That piece of paper wouldn't magically guard the nation against being hijacked and undermined. It's upto the people to adhere to it & demand accountability at all times. If majority of people choose to live in a zombified stupor, democracy is a dangerous proposition. I would rather NOT have a clueless zombie vote & influence decisions against those who're paying attention & demanding accountability. This is EXACTLY the danger of "populous democracy" which Madison warned us against. (As an aside, Andrew Jackson was the architect behind the curse of this "full participation democracy".) If mass populations can be brainwashed (using modern media like instruments of the devil), a purely populous democracy is DANGEROUS compared to the "Constitutional Republic" which the founders had in mind.

The mechanisms of checks & balances are still all there in the Constitution. Founding fathers didn't miss on them. And luckily we still have our Constitution. It hasn't yet been abolished like Stalin/Mussolini/Hitler/Zia-ul-Huq/or what Indira Gandhi was trying to do during Emergency Rule. We just have to FOLLOW our Constitution. We have strayed far away from the Constitution since 100 years ago. Especially last 20 to 40 years have been the most pronounced aberrations.

Iran cold-war forefront over US Dollar Reserve Currency issue

I was planning to blog couple of different posts by next week, but one headline from today forced me to pre-empt.

Iran presses ahead with (US) Dollar attack

Here are notable excerpts from this article:

Iranian oil bourse will start trading oil in currencies other than [American] Dollar from March 20.

Iran has the third-largest oil reserves in the world and pricing oil in currencies other than dollars is a provocative move aimed at Washington. If Iran switches to the non-dollar terms for its oil payments, there could be a new oil price that would be denominated in euro, yen or even the yuan or rupee.

India is already in talks with Iran over how it can pay for its oil in rupees.

Even more surprisingly, reports have suggested that India is even considering paying for its oil in gold bullion. However, it is more likely that the country will pay in rupees, a currency that is not freely convertible.

Last week, Indian state-owned group Hindustan Petroleum said that Indian businesses could not pay for Iranian crude imports in rupees unless the federal finance ministry exempted such payments from crippling withholding tax. This issue remains unresolved.

India and Iran have agreed – but not yet started – to settle 45pc of payments for Iranian oil in rupees. Iran will then use the currency to buy imports from India.

New Delhi currently spends about $12bn (£7.6bn) on Iranian oil each year, importing 12pc of the country’s needs from the country.

India pays for its oil in dollars, routed through a bank in Turkey after a previous mechanism was shut down in 2010. The Indian government has been resisting calls to stop importing oil from the pariah state. “There have been problems with regard to Iran’s nuclear programme,” Manmohan Singh, India’s prime minister, said on Friday. “We sincerely believe that this issue can be and should be resolved by giving maximum scope to diplomacy."

As I've maintained during previous blog-posts, this continued cold-war stance is of no benefit whatsoever to the majority of population on this planet. It is definitely of no benefit to people of Iran, nor is it of any benefit to American population. These events are happening at precisely the worst possible time, considering multiple economic uncertainties all over the world. Increase in oil prices will have unimaginable and catastrophic economic consequences to too many people in the world, large majority of them poorest of the poor who don't have a dog in this cold-war fight.

As mentioned before, the concerns aren't specifically about how despotic/undemocratic the Ayatollah regime is or how human rights of Iranian population are suppressed, or any of those issues. The cold-war has been around since 1950s  (soon after end of WWII).

The key point in above article is: "Iran has third-largest oil reserves in the world". The real issue is about control of global resources by a centralized banking hegemony, nothing else. Such control would put global population at the mercy of whims of very select few. There should be no illusion whatsoever that American population will benefit in any way by militaristic stance on this issue. Almost all Western press has been unanimously complicit and biased, providing no historical perspective about complexity of the situation.

I feel it is urgent that a bilateral solution is found to defuse this crisis, or else there are dark storm clouds ahead to face for too many people.

China NOT "Desperately" dependent on US export market

Standard arguments offered by a number of people I've spoken with, about mythically magical "World Reserve Currency" status of US Dollar staying protected are as follows:

• China is more desperately dependent on propping up "World Reserve Currency" status of US Dollar than the US. China is desperately dependent on US export market, basically keeping their strong manufacturing sector pumping goods. Due to this dependence, there is NO WAY China could even remotely entertain prospect of stopping purchase of US Treasuries, or heaven forbid....dumping them! Debasement of US Dollar would hurt China, even more than it would hurt American population.

• When Soviet Union collapsed due to mischievous militarism in Afghanistan (as the last straw that broke camel's back), their currency collapse situation was very different than anything US could ever be faced with. Basicallly, big nations of Russia, Ukraine had no big importing consumption market. They were bunch of closed, isolated markets. No major economies outside Soviet Union really gave a hoot about whether their currency collapsed. You cannot possibly draw a parallel with the American situation there. US is the biggest economy in the world, the biggest consumer market and that will forever protect "reserve currency" status of US Dollar.

Here are critical refutals of these points:

• There is a fundamental point about China being missed here. China is now a strong consumption economy in their own right. For argument's sake, let's ignore their exports to other big economies. (For example economies in doldrums like Europe, Japan; or even emerging economies like India, Brazil.) On their own accord, they are a major economy themselves! If push comes to shove, if a global military conflict really pinned them in the corner; China will not hesitate to pull a retaliatory trigger and send US Dollar into panic. They will still be able to manage their affairs, albeit through difficulties under such scenraio.

• Soviet Union were forced to wisen up due to the natural balancing act of financial markets. Actually, it even led to their deserved disintegration! After shooting themselves in the foot with unwarranted militarism in Afghanistan, there was no magical banker bailout which could've kept Soviet Ruble alive. US has already outspent itself with unconstitutional militarism in Iraq. Nobody other than the Military Industrial Complex knows why US is still outspending by occupying Afghanistan. Haven't they learnt the lesson on what it did to the Soviets? Over and above this, back home the implosion of real estate market, shaky banking sector and unconstitutional bailout of private banks with taxpayer money - those by themselves would be strong catalysts for currency debasement to any strong economy. As if this entire fiasco is not enough, the Military Industrial Complex is still not done with its hunger for militarism and unconstitutional war profits! Through strong media and political propaganda, all motions are set for military conflict against Iran, a country that hasn't attacked the US. This is like a perfect recipe for doom. Just as the Soviet currency was humbled due to natural forces of markets, further belligerent militarism spending will set up US Dollar against the same market forces - its biggest nemesis. Just by uttering phrases like "Shining City on the Hill" or "American Exceptionalism" or standing in the middle of a street with puffed chest screaming "USA! USA!! USA!!!" isn't magically going to undo fundamental economic principles.

Has the Federal Reserve been a failure?

Here is a very interesting long paper from December 2010, which I discovered and wanted to share. It digs deep into the premise under which Federal Reserve was formed in 1913. Since then, over the course of multiple worldwide military conflicts, a depression, multiple recessions and recoveries, it has been an omnipresent (seemingly invisible) presence in the lives of millions. Many people may not be actively aware of its day to day existence, or understand how it works in detail, or have just taken its activities for granted. (Cue Wizard of Oz: Pay no attention to that man behind the curtain!) If you live on this planet and participate in global markets, the Federal Reserve does have an impact on your life. Discussion here will mostly be focused on US population, and anyone else dependent on US Dollar as the basis of their transactions.

Although the paper below has 84 pages, from pages 48 onwards it's mostly references and charts. So it's not as long as it appears on first look. I'm quoting the most interesting snippets from my perspective:

Has the Federal Reserve been a failure?

From Page 3, talking about marathon inflationary forces created by the Fed :

The Fed has failed conspicuously in one respect: far from achieving long-run price stability, it has allowed the purchasing power of the U.S. dollar, which was hardly different on the eve of the Fed's creation from what it had been at the time of the dollar's establishment as the  official U.S. monetary  unit, to  fall dramatically.

From Page 38, talking about whether there are any potential alternatives for present course of Federal Reserve, or should we be resigned to status quo? Note that the language is somewhat academic, but the point being made is very crucial :

Coming up with alternatives to the Fed today takes more imagination. Assuming that there is no political prospect of replacing the fiat dollar with a return to the gold standard or other commodity money system, for the dollar to retain its value some public institution must keep fiat base money sufficiently scarce. In this respect at least, our finding that the Fed has failed does not by itself indicate that it would be practical to entirely dispense with some sort of public monetary authority. But neither does it indicate that the only avenues for improvement are marginal revisions to Fed operating procedures or additions to its powers. On the contrary, the Fed's poor record calls for seriously contemplating a genuine change of regime.

 And finally, the damning assessment in "Conclusion" on Page 48 which I was waiting for :

Available research does not support the view that the Federal Reserve System has lived up to its original promise. Early in its career, it presided over both the most severe inflation and the most severe (demand-induced) deflations in post-Civil War U.S. history. Since then, it has tended to err on the side of inflation, allowing the purchasing power of the U.S. dollar to deteriorate considerably. That deterioration has not been compensated for, to any substantial degree, by enhanced stability of real output. Although some early studies suggested otherwise, recent work suggests that there has been no substantial overall improvement in the volatility of real output since the end of World War II compared to before World War I.

Along these lines, here is a very interesting article from January 26 which caught my eye. It appeared in the Wall Street Journal, of all places; which is surprising considering persistent Keynesian inclination of that paper.

Regardless of the discussion of current political happenings in that article, it has never been my intention to publicly endorse any parties/candidates in this blog. Obviously, that doesn't mean I don't have my opinions one way or another. It's just that for the purpose of this blog, I want to keep it uncluttered of political/election/partisan talk, and focus on policies/substance. That's all. 

Federal Reserve, the Need for a Stable Dollar (and Presidential Candidate US Congressman Ron Paul)

The most interesting snippet from this article - which is very much along the lines of above paper - is quoted below.

Dollar weakness doesn't work at all for economic well-being. The corollary to the Fed's policy of manipulating interest rates downward at the expense of savers is declining median incomes. It's no coincidence that inflation-adjusted median incomes rose in the sound-money booms of the Reagan and Clinton administrations and fell in the weak-dollar busts during the Carter, Bush and Obama years. When the currency weakens, the prices of staples rise faster than wages, hurting all but the rich who buy protection. The economy and median incomes would do much better if the Fed said simply that it would set interest rates as best it could in order to keep the dollar's value strong and stable in coming decades, with the goal of attracting capital, maintaining price stability and encouraging full employment. Yet the Fed is adamant that somehow business confidence will benefit by the Fed sharing its guesses on equilibrium interest rates—which after all are far from a science—but not its vital thinking on the future value of the dollar.

And finally, the "announcement" from January 25 by Fed Chairman Ben Bernanke which makes you shake your head in bewilderment :

Ben Bernanke says: No Interest Rate Hikes till 2014!!

Which leads me to my concluding rant:

The idea that a bunch of bureaucrats working on behalf of private bankers could sit in a room, and in Soviet Politburo style make fundamental decisions about long-term interest rate direction is an anathema to fundamental principles of capitalism and free markets. The very basic principles of demand-supply economics, elasticity of free markets, that's what is supposed to determine equilibrium conditions for interest rates. This same elasticity of free markets is supposed to dictate trade patterns. Under those basic conditions, the markets are supposed to DICTATE interest rates. What we're witnessing with arbitrary long-term interest rate decrees is an exactly opposite system flipped on its head : A bureaucracy cooking up interest rates, which dictate market conditions. By definition, the Federal Reserve is behaving as the croniest of the bunch for basis of crony capitalism.

Here is an even more ridiculous fact: Completely unrelated to its original charter from 1913 founding (howsoever dubious that itself might have been), Fed has now even made dictating US employment/unemployment conditions as its charter! What in the name of capitalism is going on with that?

Here is the bottom-line: It doesn't matter how many bureaucrats arbitrarily decide to dictate interest rates and unemployment numbers. It doesn't matter how many cronies working for governments/private banks/lobbies cook up these numbers. In the end, the markets are all ruthless and unforgiving. Demand-supply equations of worldwide markets, physical/human resource limitations, natural calamities, man-made military conflicts, all of these factors are very unforgiving. It doesn't matter how big bailouts are engineered by which cronies. The markets eventually drown out all cronyism. The downside is, when markets are forced to return to their fundamental principles in ruthless manner, they bring misery to lives of countless number of ordinary people. Very select few at the top of crony-pyramid are able to take advantage, before the fundamental market forces come crushing. As a hint, imagine if interest rates are forced to rise to more honest values, how much of havoc it will cause in private banking industry. I hope to elaborate more on that point in near future.

By the way, along the lines of Ben Bernanke's cooked up zero interest rates, I have intended to blog about flurry of refinancing activity for quite a while. As a personal disclaimer, yours truly has taken part in such refinancing of whatever debts on occasion. My objective was to discuss the true value of such refinancing from macro-perspective. The premise being: Long-term predictability of fiat-currency's purchasing power (in terms of physical goods and services) is very bleak. In that context, how much impact would it really make if an individual household reduces their mortgage obligations from $2800/month to $2740/month, if long-term purchasing power of that $2740 is hard to predict? On a macro-level, these low-interest conditions are nothing but an illusion. Anyway, due to time constraints and length of this blogpost, I'll leave that discussion for another post on another day.