The World Is Creeping Toward De-Dollarization

The issue of when a global reserve currency begins or ends is not an exact science. There are no press releases announcing it, and neither are there big international conferences that end with the signing of treaties and a photo shoot. Nevertheless we can say with confidence that the reign of every world reserve currency has to come to and end at some point in time. During a changeover from one global currency to another, gold (and to a lesser extent silver) has always played a decisive role. Central banks and governments have long been aware that the dollar has a sell-by date as a reserve currency. But it has taken until now for the subject to be discussed openly. The fact that the issue has been on the radar of a powerful bank like JP Morgan for at least five years, should give one pause. Questions regarding the global reserve currency are not exactly discussed on CNBC every day. Most mainstream economists avoid the topic like the plague. The issue is too politically charged. However, that doesn’t make it any less important for investors to look for answers. On the contrary. The following questions need to be asked: What indications are there that the world is turning its back on the US dollar? And what are the clues that gold’s role could be strengthened in a new system?

Greece Contemplates Nuclear Options: May Print Euros, Launch Parallel Currency, Nationalize Banks

As we said earlier today, following today’s dramatic referendum result the Greeks may have burned all symbolic bridges with the Eurozone. However, there still is one key link: the insolvent Greek banks’ reliance on the ECB’s goodwill via the ELA. While we have explained countless times that even a modest ELA collateral haircut would lead to prompt depositor bail-ins, here is DB’s George Saravelos with a simplified version of the potential worst case for Greece in the coming days:

The ECB is scheduled to meet tomorrow morning to decide on ELA policy. An outright suspension would effectively put the banking system into immediate resolution and would be a step closer to Eurozone exit. All outstanding Greek bank ELA liquidity (and hence deposits) would become immediately due and payable to the Bank of Greece. The maintenance of ELA at the existing level is the most likely outcome, at least until the European political reaction has materialized. This will in any case materially increase the pressure on the economy in coming days.

All of which of course, is meant to suggest that there is no formal way to expel Greece from the Euro and only a slow (or not so slow) economic and financial collapse of Greece is what the Troika and ECB have left as a negotiating card.

For Germany, Demography Is Doom

Britain and France are in far better shape, with an average of 12.5 births per 1,000 in from 2008-2013. The IMF expects both countries to overtake Germany in total GDP by the middle of century and possibly even by 2040, implying a radical shift in the European balance of power.

 

 

Germany’s economy dominates the EU, but if demography is destiny–and it is–then, Ambrose Evans-Pritchard argues in the Telegraph, Germany is doomed. I had not realized that the numbers are so grim:

Germany’s birth rate has collapsed to the lowest level in the world and its workforce will start plunging at a faster rate than Japan’s by the early 2020s, seriously threatening the long-term viability of Europe’s leading economy. …

The German government expects the population to shrink from 81m to 67m by 2060…

What Happens When You Take the UK out of the EU?

Britain is closer than ever to cutting ties with the European Union. What will Europe look like once the British are gone?

If the European Union wants to make British people angry, it’s doing a stellar job. In October, after revising how they calculate gross domestic product, EU officials determined that Britain was wealthier than they thought. They abruptly handed Britain an unexpected bill for $2.7 billion, including back payment, for the EU budget. Then other EU leaders publicly castigated London for noncompliance with the EU’s liberal immigration policies. And in November, Jean-Claude Juncker—a man who openly spurns democratic norms, saying, for example, in 2011, “I am for secret, dark debates”—was appointed president of the European Commission.

Britain’s simmering resentment of the EU boiled over.

World economy so damaged it may need permanent QE

Markets are realising that the five-and-a-half year recovery since the financial crisis may already be over, says Ambrose Evans-Pritchard

Combined tightening by the United States and China has done its worst. Global liquidity is evaporating.

What looked liked a gentle tap on the brakes by the two monetary superpowers has proved too much for a fragile world economy, still locked in “secular stagnation”. The latest investor survey by Bank of America shows that fund managers no longer believe the European Central Bank will step into the breach with quantitative easing of its own, at least on a worthwhile scale.

Markets are suddenly prey to the disturbing thought that the five-and-a-half year expansion since the Lehman crisis may already be over, before Europe has regained its prior level of output. That is the chief reason why the price of Brent crude has crashed by 25pc since June. It is why yields on 10-year US Treasuries have fallen to 1.96pc, and why German Bunds are pricing in perma-slump at historic lows of 0.81pc this week.

We will find out soon whether or not this a replay of 1937 when the authorities drained stimulus too early, and set off the second leg of the Great Depression.

Is the West Finally Waking up to Reality? Is it Too Late?

When we first started writing this Blog in 2011, few ever considered economic warfare. When we pointed out Vladimir Putin’s threats against the dollar, few paid attention. When we explained the risk of EMP, few cared to listen. When we stated that World War 3 could be around the corner, few understood. But, over the past weeks we have seen a slow recognition of these realities. The unfortunate thing is that this recognition is only beginning. And the threat is escalating quickly.

Here are some of the headlines and excerpts from four critical articles over the past week. The first from Ambrose Evans-Pritchard explains the reality of economic warfare:

US financial showdown with Russia is more dangerous than it looks, for both sides

This is Germany’s Moment!

It appears the current phase of Europe’s debt crisis is entering its last hour. We’ll know soon, but it’s possible the weekend of May 5, 2012, will be remembered as a transformative moment in the history of Europe.

Once again, the nation at the center of it all is Germany.

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Finally, there’s the run-off presidential election in France, which could have enormous impact on Germany and Europe. From the moment the debt crisis began in 2008, the responsibility of fixing it has rested primarily on the German-French axis. Truth be told, President Sarkozy’s main responsibility has been to embrace the solutions coming from Berlin, giving them added legitimacy in the eyes of Europe and the rest of the world.

If Socialist candidate Francois Hollande is elected, Germany loses its French toady.

That’s not all. When it comes to solving Europe’s debt woes, Hollande’s view is the antithesis of that of Angela Merkel and German public opinion. He’s already stated that he won’t support the fiscal pact as it currently exists. When it comes to Europe’s finances, he said last week, “It’s not for Germany to decide for the rest of Europe.” He also believes that instead of austerity, the solution to Europe’s debt woes is printing and spending more money. “So many people in Europe are waiting for our victory,” he said recently, “I don’t want a Europe of austerity, where nations are forced on their knees.”

Read between the lines of that statement. This man isn’t merely campaigning for leadership of France, he’s making a play for leadership of Europe. In another recent address, Hollande told supporters that “the people of Europe expect that we, the people of France, will provide Europe with another perspective, another direction, another orientation.”

They say Hollande lacks personality and charisma. Well, he makes up for it in audacity. He sincerely believes the rest of Europe wants him elected so France can replace Germany at the helm of Europe!

That’s never going to happen. France lacks both the financial health and political muscle to replace Germany as the arbiter of this crisis. Nevertheless, France’s dissension under Hollande could throw Europe into financial and political turmoil. Der Spiegel reported recently that “for France’s neighbors and the fight against the sovereign debt crisis in Europe,” Hollande’s election “will set everything back to square one.”

As you can see, Europe’s financial crisis isn’t even close to being over—though it is likely entering a new, more exciting, more dramatic, more sobering chapter!

It’s possible, likely even, that the convergence of these events—the widespread resistance to German-imposed austerity, the renaissance of nationalism, Spain’s imminent default, the collapse of the Dutch government, and the inconveniently timed national elections in Greece and France—will produce a moment of historic importance. As this unfolds, don’t take your eyes off the nation at the center of it all.

As Ambrose Evans-Pritchard wrote, “The epicenter of Europe’s political crisis may soon be Germany itself.”

We must watch for Germany’s response. It will have a colossal impact on Europe, and on the rest of the world.

Full article: This is Germany’s Moment! (The Trumpet)