The Truth: The US Dollar Will Not Be Overthrown in October

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Following the World War D conference in Melbourne last year, there was a dinner for all the presenters.

I had the pleasure of sitting next to Jim Rickards and Dr Marc Faber.

The conversation naturally drifted towards money. It didn’t take long for me to realise Jim and Marc operated in another world to me — no, make that another universe. The seriously connected people they knew and their deep knowledge on the interconnectivity of markets rendered me to the role of silent spectator. I was happy to listen and learn.

And what I learnt was that Jim knows a lot of people on the inside — inside Wall Street, the Fed, the IMF and Washington DC. These contacts put him well ahead of the curve on what real influences are shaping the global economy and investment markets.

Knowledge is the key…and inside knowledge is an even bigger key to unlock the secrets to protecting and creating wealth.

In today’s article Jim shows you how the insiders think and operate. The elites have a grand plan and a method. Sometimes the best laid plans don’t work. Markets may disrupt or even ruin the elites’ timetable. However, it is vital to know what they are thinking and planning. These are very powerful people with unwavering determination to create inflation.

Having control of the fiat money systems means they will stop at nothing to create inflation. The contracting credit forces within the global economy means deflation is posing a far more serious threat to the elites. They have never encountered a sustained threat of this nature before.

The collision of two very powerful forces is going to generate enormous volatility. Knowing how to turn these forces to your advantage will require inside knowledge.

The sort of inside knowledge Jim Rickards can bring to you.

Read. Enjoy. Learn.

Regards,

Vern

The Truth: The US Dollar Will Not Be Overthrown in October

Jim Rickards, Strategist, Strategic Intelligence

Blogs, newsletters, and inboxes are cluttered with dire warnings about an event coming in October 2015.

This event will supposedly overthrow the US dollar as the global reserve currency and spark a meltdown of the international financial system.

Nothing of the kind is about to happen. Important and significant dealings are happening behind the scenes in the international monetary system. Global elites are meeting in Washington, Beijing, and Lima, Peru.

They are making decisions that will impact global capital markets in the years to come. There is a plan underway to solve the global debt problem by stealing your money through inflation. But elites do not operate on the ‘big bang’ theory.

They do not announce radical changes overnight. They prefer to make small moves, year after year, through boring technical changes that few notice or understand.

The elites have a plan to take your money. Yet they prefer a slow orderly approach, as opposed to a rapid disorderly approach. Here is a step-by-step walkthrough of what is really happening.

The October scare tactics should not frighten you. However, you should be concerned about this long term elite plan to destroy your wealth.

The centrepiece of the elite plan to wipe out debt and destroy wealth is the world money issued by the International Monetary Fund, the IMF.

This world money is called the special drawing right, or SDR. The SDR is actually not that complicated. The US Federal Reserve can print dollars, the European Central Bank (ECB) can print euros and the IMF can print SDRs — it’s that simple.

The main difference is that we can keep dollars or euros in our bank accounts or wallets, but SDRs are for countries only. The IMF adds them to national reserves.

Countries can swap SDRs for dollars, euros, yen or other major currencies using a secret trading facility inside the IMF in Washington. So the inflationary potential of printing trillions of SDRs is the same as printing trillions of dollars or euros once the recipients make the swap.

The main difference between SDRs and dollars or euros is that no one is accountable. When the IMF floods the world with SDRs, you won’t be able to blame the Fed or ECB. Few people will have any idea what’s happening.

They’ll just find out the hard way that inflation has wiped out their savings.

That’s the background for SDRs. But there’s a chronology of coming events. As events unfold, you’ll be able to see them in the proper sequence and perspective. Two of these events have already occurred.

Here’s the calendar:

  • 17 September 2015 — The Fed’s Open Markets Committee announces policy changes in interest rates
  • September 2015— President Xi of China visits the White House
  • 9 October 2015 — IMF annual meeting in Lima, Peru
  • November 2015 (exact date TBA) — IMF Executive Board discusses ‘new’ SDR
  • 30 September 2016 — New SDR goes into effect

As expected, the Fed didn’t raise rates at the September meeting.

The visit from President Xi was important. Chinese official want the yuan to be included in the SDR basket.

By itself, including the yuan in the SDR basket will not disrupt the international monetary system and will not overthrow the dollar as the leading global reserve currency. But it is an important sign of respect and does represent enhanced prestige, which China desperately wants.

The US has veto power over the IMF’s decision to include the yuan in the SDR. The US has used its clout to put China on its best behaviour before the IMF makes the decision. This means China has to put an end to its currency war with the US and peg the yuan to the dollar.

However what you will notice from the calendar of above, is how closely IMF events relate to it.

That’s reflects the fact that the IMF is closely coordinating its efforts with central banks and heads of state. In the past, the US Treasury was the primary agency involved with the exchange value of the US dollar.

The Fed focussed on the economy but did not involve itself with the dollar in international markets. That has changed.

When I met Ben Bernanke in Korea recently, he told me he was heavily involved in discussions with the IMF in 2009 and 2010 on a variety of issues including IMF voting rights, issuance of SDRs, US funding of the IMF and an increased voice for China.

This four-way interaction of the White House, Fed, Treasury and IMF is now well entrenched.

Another year of deflationary forces

The possibility of including the yuan in the SDR will certainly come up in the hallways and private dinners in Lima.

But it is not on the official agenda and will not be decided in October.

How do we know? The IMF told us!

Gerry Rice is the official spokesman for the IMF.

Here’s a direct quote from Rice’s press briefing on 23 July 2015, in which he discussed China and the SDR:

The SDR process — that’s shorthand for the Chinese request from the government of China — that the Chinese currency…would be included in our SDR basket of currencies… the SDR review is going along well…we’re expecting the formal board discussion of this issue toward the end of this year probably in November, but toward the end of the year.

That’s straight from the horse’s mouth — no need to guess or speculate. In other words, there is no global monetary reset coming in October regardless of what you may have read elsewhere

Even the November 2015 ‘discussion’ is not decisive. On 4 August 2015, the IMF extended the final action to update the SDR basket to 30 September 2016.

That delays any action with respect to China by another year.

More importantly, it means another year of yuan-dollar finesse and another year of deflationary forces if the Fed keeps talking tough, forcing China to go along in order to gain admission to the SDR.

Including the yuan in the SDR next year will be a highly important symbolic step, but it will have no immediate impact on the international monetary system.

The yuan is not even close to replacing the US dollar as a global reserve currency. There are not enough yuan denominated sovereign bonds for investors to park their reserves, and there is no well developed yuan bond market to provide liquidity.

China has been buying a lot of gold, but it has printed more money than the Fed the last six years and has nowhere near enough gold to launch a new gold-backed currency.

The most important thing for you to understand is that China does not want to rock the boat — they want to join the club. This means the IMF’s special club of SDR members.

The future world reserve currency is not the US dollar or the yuan. It’s the SDR.

The impact of a September 2016 decision to include the yuan in the SDR will resemble China’s recent updating of its gold reserve position. It happened, but it was not the big deal many expected it to be.

That’s just how the global elites like things — slow and steady. There is a plan to steal your money with inflation, but it consists of many small steps, not a few big ones.

Adding the yuan in the SDR basket in late 2016 is an important step, but it is not a game changer.

Including the yuan in the SDR will take another year.

Making the SDR the new global reserve currency will take a few more years and a lot more SDR printing.

Regards,

Jim Rickards

Strategist, Strategic Intelligence

Ed note: The above article is an edited extract from Strategic Intelligence.

Jim Rickards
James G. Rickards is the editor of Strategic Intelligence, the newest newsletter from Port Phillip Publishing. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. Jim also serves as Chief Economist for West Shore Group.
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