Basically we are in a ship that is coming apart as a rough sea starts to come over the top of her.
Rates on US Debt are creeping up. If they continue up then the US housing market and the recovery based unsteadily on it will collapse in rubble.
In the UK inflation is now over 3%. No one is quite sure high it is in China but it’s growing and China is worried about food prices.
In Europe, Greek debt is now uninsurable. There were simply no buyers at all today. And Greece’s bail out fund is also unravelling. Austria has now confirmed it is refusing to hand over a pledged €190 million tranche of its contribution to the Greek bail out. Because Austria says Greece has lied too much and has not raised the money she said she would through tax increases. Austria dosn’t trust Greece any more. Pot and kettle happening there, I feel. Small money but its the precedent that kills. Without unity there is no bail out. WIthout a bail out Greeece falls over. If Greece falls over so do Austria’s banks. Ooops!
Ireland is flailing and sinking. Finland said today it objects to any bail out of Ireland. Ireland is being pressured to accept the king’s shilling. She should not, but if she doesn’t she can bring the whole rotten house down with her.
The UK banks are exposed to a great deal of Irish debt.
Portugal is getting burnt as it stands there watching Ireland.
European markets are fell 2-2.5% today. All U.S. markets are down nearly 2%.
China markets have plunged nearly 10% in three days because it looks like the Chinese authorities are finally getting a vise around the bank lending and property bubble. If they really do and keep it there into next year that Australia will start to wobble.
China announced today an agreement with Russia to trade between the yuan and ruble. A few days ago when I was talking about gold buying countries setting up a new reserve currency and I said I expected to see China make aggressive bilateral agreements? Well I think this is one of them. Russia and China are two of the gold buying nations.
I think it is likely that China has told the EU she does not want to replace the dollar with a single new reserve currency but rather wants to see the dollar now as one of three reserve currencies: the dollar, euro and gold backed new currency.
This is obviously just a guess. But I don’t see the new currency having a hope of replacing the dollar. But I see great attraction to a gold backed currency establishing itself as one of a group. And the Euro would benefit by its elevation to reserve status. The only loser is the dollar which would suit Europe and China. Just a thought.
You know how I said we have spent the summer in the quiet of the eye of the storm? Well I think we are now leaving there and so “Welcome back – to the second, much nastier half of the storm.”
So the idea is to pay each other in gold instead of dollars when buying each other's exports?
At least I assume that's what they want to do. I don't understand the whole reserve currency issue very well. If they use the dollar, does that mean if the dollar depreciates then they're paid less for their exports, so they want to dump the dollar? If that's the case, the Euro hardly seems like a better bet.
I'd think they'd be better off spending that gold money on developing their internal markets, which seems to be the best hedge against global recession/depression. Everyone can't be Germany, surviving on exports.
UK Inflation. Why is no-one going mental about this?
The most significant upward contributions to the CPI 12-month rate to October 2010 came from:
• transport which contributed 0.9 percentage points. The largest effect here came from fuels and lubricants where, overall, prices rose by 11.4 per cent over the 12 months to October. There was also a large upward effect from air transport where fares rose by 18.0 per cent over the same period
• food and non-alcoholic beverages which contributed 0.5 percentage points with prices, overall, rising by 4.5 per cent over the year. The upward pressure on inflation here was widespread as all categories within this division had an upward contribution to the 12-month rate. The largest effects
came from fruit where prices rose by 11.2 per cent over the 12 months to October and vegetables where prices increased by 5.4 per cent over the same period.
And they're even thinking about printing more money and giving it to the banks to speculate with!?
Hello DopeAddict,
No they won't pay each other in gold. The idea would be to have a currency, a paper one, backed by gold at a set rate. This new reserve currency would be on a gold standard.
Remeber I am just speculating here.
But the idea would be that in a world where investors are worried about long term inflation of the dollar's worth due to excess printing, a gold bakcked currency might look very attractive as part of a porfolio of currency holdings.
Being gold backed at a fixed rate the currency would be able to be trusted in a way the dollar no longer is, because they would not be free to print it willy nilly. That is what a gold standard means. It also means, because it is not a floating fiat currency, that speculators cannnot so easily shove the value around as they please. This would make it a good stable hedge.
Of course the speculators can shift the value of tehe gold. But what no one can do is devalue by printing. Attractive in these times.
As I said I don't see this as a plan to dump the dollar completely. At least not in the short term. That would be too agressive and dangerous. I think they might be thinking to themselves that this can be introduced in a much softer way. Not dumping the dollar but 'helping' the world financial system 'alongside' the dollar.
If I am anywhere near the mark, and I could be a million miles off, but if I am anywhere near close, then I would expect 'them' to have approached the euro zone suggesting that the euro be part of a triumvirate. Such a plan would offer a real incentive for the euro zone as it would elevate the euro to reserve status and give it some of the status, relative to the dollar, it has always striven for.
Gradually China, Russia and Iran (I see them as the core players in this idea) would have a currency allowing them to run deficits, allowing them to stop accumulating quite so many dollars without having necessarily to sell them. As trade gradually shifted to the new currency and out of the dollar currency holdings woudl shift. From dollars to euors and the new currency.
All the countries invoved would be bettrer insulted from the flows of hot printed up dollars and would have better control over their domestic investment than they have now.
Such a move woiuld also geld the IMF and limit its international pretentions.
If Iran was inviolved it would bring her oil reserves in to play as secondary backing for the currency (unofficially) and make it more and more diffcult to cast Iran as one fo the axis of evil.
If such a plan became real and was bruted about I would expect Israel to be very deeply troubled.
I could go on as I have pndered this for a long while. But I will stop there becuase as I say it is all pure speculation.
Unclear,
the government isn't because it is afraid of what it means. They can't print. And they may have to raise rates, which alongside unemployment and general austerity measures would be a killer triple blow to incomes and spending and therefore to the stupid Tory plans.
But I think people will start to go mental as they begin to feel the pain and realize for themselves, in their slow way, what is really happening to them and more importantly, what is most asuredly going to happen to them.
One person probably is going mental right now and that is Mervyn King. He, at least willknow what this means.
All in all I think we are heading into the teeth of the storm now.
I think some sort of Gold standard must be re introduced to get money back to some sort of sanity and have some basis for it's existence. I doubt if there would be an agreement how this could be achieved by the major players but like most things nowadays this could happen by default when the Fiat system of paper money collapses. Glad to find your site Golem. I've always enjoyed your comments in the Gruaniad..and incidentally I'm purchasing Gold again as I'm tired of leaving my few quid with these Casino bankers who do not pay out anything but peanuts to those that lend them money…US!
Corbo Norwich
corbero,
Very glad you've found us. I look forward to readin any thoughts you care to share.
I agree a gold standard that relied on a global concesus hasn't a hope. That is why I think the small number of aspiring and emerging market countries will do it between themselves. I note that today China has said it is going to be buying more gold. Fancy that!
Yeah, it'll be very interesting if smaller countries revert to the gold standard.
But for larger countries like the US, UK, China, Japan, it would be tantamount to suicide. It's exactly what they don't need now, taking away their ability to deficit-spend w/in their own country to employ people & boost demand. If one or more of the big countries would wake up & do so, they could help kick start a world-wide recovery, in time.
If the UK govt would "print" and use it productively (create jobs) inflation wouldn't be a problem, due to the massive amount of idle resources rotting all around us. But since the neoliberals use unemployment as a tool to "fight" inflation, the chances of this happening are less than nil.
I couldn't agree more about the idiotic way government's refuese to use the money they borrow or print for any productive measures at all. they will only do it so they can give it the banks who do nothing useful with it at all. Its perverse to say the least.
China already runs two currencies. Don't you think they couldcontinue to use their domestic currency which they can devalue all they want, at the same time as they create and use a gold backed currency for international settlement and trade?
Pick and mix.
How about this for an idea.
“An interlocking set of reserve currencies at fixed parities with end of year gold settlement.”
Described here: http://www.youtube.com/watch?v=EIcwfLwujB8 at 1:15min – 3:10min
@corbero
Re: buying gold. You may find this interesting.
http://www.creditwritedowns.com/2010/11/gold-is-correcting-when-do-we-buy.html
– includes charts showing all the major surges and corrections (greater than 5%) since 2001 for some historical context.
I think they are doing the same for silver tomorrow.