Tuesday, January 14, 2014

Global currency reset: is it real?

The Intertubes are buzzing with talk of a global currency reset, usually in conjunction with a sale of a DVD that the seller alleges contains secrets that "the elite" have imparted to him that will make the difference between survival and adject ruin in your life. The most cogent of these is by Pastor Lindsey Williams here.

The basic argument is that Christine Lagarde has secured agreement from some 204 nations to enter into a new managed float currency system that, however, will move currencies toward new exchange rates based on national "assets." America, being the premier debtor nation in the world, would be devalued in its new channel, especially relative to the yuan. This of course is what a lot of people would like to see happen to stimulate exports. This system is allegedly to be kicked off by the end of first quarter 2014. There will be some sort of gold-backed or basket-based new international reserve currency introduced.

Obviously America is hit by stagflation as goods from China increase in price by 30 percent or so. Simultaneously the government in 2014 or 2015 will seize 30 to 50 percent of public and private pension funds to pay down government debt.

I have little doubt that the dollar's reserve currency status is weakening. Many significant trade deals have been recast in the past few years out of dollars into other currencies, or in some cases, into commodities. But if such negotiations for a global currency reset have taken place they have been kept very quiet.

The problem I have with this story is that it conflicts with what I see as the most likely outcome, the credit supernova, in which all countries succumb to temptation to beggar the rest of the world to inflate out their debt and depreciate their currency. America's dominance and relative safety (note the negative yields on recent T-bill auctions) would seem to augur a relatively strong dollar in such a supernova scenario.

However, Williams does make a credible case that the American economy will totally collapse in 2015 when the business mandate of Obamacare takes effect. The press has recently given coverage to the profit guarantees that the health insurance companies enjoy under Obamacare. Recent retail sales numbers certainly suggest a collapse of demand (see this).

The good pastor also maintains that the smart meters that have supposedly been put on most American houses are in fact microwave mind control devices that have softened up the population for the imposition of the totalitarian new world order without violent resistence (this seems to entirely based on the allegations of one Barrie Trower, a British physicist).

What economists call "effective" demand collapses when most people's incomes are falling, even if total income (GDP) is ostensibly rising. The rich just don't spend enough or on the right things to keep the circular flow going in a healthy way. And when the most attractive investment opportunities are offshore, anyone with a mutual fund can send their capital abroad. Add to this the bad debts of the banks that they have transferred onto the backs of the American (and Irish, and Spanish, and Portuguese...) people and the stage is indeed set for collapse. The question will be whether the rich will push the poor into a die-off (life expectancies are already declining among the lower classes in America, and probably elsewhere) or whether the population of the world will learn to share in the context of a just society.

In any event, we'll see if there's anything to all the fevered talk about the "global currency reset" within 90 days.


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