World Rushes to De-Dollarize Oil Trade Before US Economy Crashes and Burns

[jhungary]

@jhungary Interesting example of MMO Mechanics. I have some experience studying the economics of virtual market places in Eve Online, GW2 and Archeage.

Different games employ different mechanics to control inflation and currency depreciation effects. In essence all employ money sinks using probability matrix. There is a chance based mechanism where you have an exceedingly large chance to destroy your weapons in process of up-gradation and since almost all MMO players are into min-maxing they invariably end up destroying lot of available currency in form of weapons through these mechanisms.

EVE which is the closest stimulator to an open market place works differently though where in money sink is large battles and billions of in-game currency is lost irrevocably in form ship destruction.

Real World - is a lot more complex but has similar money sinks in form of consumer goods. Every-year Billions of Dolllars are sunk into latest gadgets and cars and by the end of their life-cycle which is getting exceedingly shorter these goods are junked. Cars are scrapped, Cell-phones are recycled at fraction of their original value.

Some of this is planned by way of technological obsolescence where-in product manufactures either through clever marketing gimmicks or through shoddy manufacturing ensure that the consumer is compelled to continuously buy new stuff and junk the old one.

Regards

lol, I played eve-online about 5 years ago.....

Anyway, yes, we can learn a lot from Online gaming actually, simply because we can fail there and we can't in real world.

The problem about gaming economy, no matter how you slice it, cannot be the same as our real economy, as they don't generally have an external factors, factor such as market spike and panic, outside influence, hedging and so on. Or another word, gaming economy is enclosed, and was ultimately the responsibility of the gaming company.

@Spectre @jhungary @Providence
I am afraid the whole world is heading towards Japan style stagnation.
When Japanese real estate bubble popped Japan's central bank reduced the interest rate to 0 and since then they have been using loose monetary policy with no result.
Graph Japanese interest rate BoJ - long-term graph

This has lead to stagnation in their economy since

The FED, ECB, PBOC have followed the same loose monetary policy that is print money to escape deflation
In 2008 when we where hit with crisis Ideally what should have happened was fed would have allowed the market to collapse. This would have popped the inflated bubble just like it happened during great depression in 1929. But instead all the central banks in the world followed loose monetary policy.
Graph American interest rate FED - long-term graph

Graph European interest rate ECB - long-term graph

Graph Swedish interest rate Riksbank - long-term graph

Swedish interest rate are negative such a loose monetary policy has inflated a bigger bubble.
This level of quantitative easing and loose monetary will lead to Weimar republic or Zimbabwe style HyperInflation .

Zero interest rate is not necessarily a bad thing, it does also ease the interest tension by holding it at 0 or near 0.

Which would translate to more liquid currency out there, and that would increase the flow of the currency.

While zero interest rate encourage borrowing, they had also increase employment oppuntities, by expanding the national financial infrastructure, they effectively rebuild the national infrastructure from scratch using 0 or near 0 interest rate.

 

[gambit]

lol, it took me 15 minutes or so to write this...I wrote my research thesis on Gold System so almost all the information simply just pop into my head.

I think we can write this up as another needed intellectual spanking...

But then...Give the 'America-is-collapsing-China-dumping-dollar' subject a rest a few weeks and another fool is going to post another idiotic 'analysis' of the same subject.

 

[Nike]

You're referring esp to China?
Biggest USD reserves and biggest sovereign creditor to the US?

East Asian Countries, not only China, because South Korean, Japan, Taiwan and several ASEAN countries like Singapore, Malaysia had a huge reserves in US Dollar

 

[Lonely Hermit]

Zero interest rate is not necessarily a bad thing, it does also ease the interest tension by holding it at 0 or near 0.

Which would translate to more liquid currency out there, and that would increase the flow of the currency.

While zero interest rate encourage borrowing, they had also increase employment oppuntities, by expanding the national financial infrastructure, they effectively rebuild the national infrastructure from scratch using 0 or near 0 interest rate.

Sir you must be from krugman school of economics to state that zero interest rate stimulate economy . It simply keeps your real estate, stock market and commodities inflated. It does not allow free market to do price discovery. Do tell how easy it is for millennial to buy an house since prices have been kept artificially inflated. Normally what used to happen was when economy was hit Central banks would lower the rate. For example during dotcom burst FED rates are given

from 2001 to 2004 they kept interest rate around 2 to 1 & that is the period when real estate bubble was formed later on they raised it back to 5%. Now since 08 crisis fed has kept the rates at zero can you imagine what sort malinvestment and bubble have formed due to such low interest rate. Central banks cannot normalize interest rate back to 6 to 7 percent or it will pop up the bubble.
Such low interest rate are not meant for stimulating the economy but to keep stocks value up. Now tell me good sir if you repeatedly do quantitative easing(money printing) and keep low interest rate so aren't you repeating Zimbabwe or weimar republic style monetary policy.
Check out this chart

By the looks of it we are staring at another market crash after all, all bubble must pop. So what will central bank do now interest rate are already at zero or probably they will keep the interest rate to negative as they have done in sweden . Or they might do Bail in just like what they did in cyprus(Stealing depositors money)
The Cyprus Bank 'Bail-In' Is Another Crony Bankster Scam

Why gold system is not an answer?

While gold system were dominated during 1800s to early 1900s, gold system have an inherit flaw and that is its abundance.

While there are a fixed amount of gold in this world. The extraction rate is also depending on the technology level, meaning you can only extract a certain amount of gold on a given day, month and year.

So what would be the problem? The problem would not be much if you can match your gold production rate to keep up with the demand without depreciating it price. But what if your demand of currency spike? Say for example, you need to major overhaul your country by rapidly approving development project? If the demand of currency spike, it will spike the demand of gold under gold standard. And since you cannot extract anymore than you can limited by technology, at some point, you would not have enough gold to go around.

Now, that would leads to two possible solution, either you pay using gold certificate (A form of IOU) and using the certificate to accumulate gold debt. Or you appreciate the value of gold so you can pay more with less gold.

Which the first one is what actually happened after WW1 when the spiked domestic production for material used in war lead to too many IOU around the world and most country are facing bankruptcy rather than actually able to pay off the gold debt.

The second solution will totally destroy the creditability of gold system if their value can be appreciated and depreciated by given demand. And that is why the gold system failed in 1920.

Another problem is that to have gold as a standard currency system, it have to have a stable amount of reserve, but look at today gold distribution, you will see 40% of all the world gold is in private ownership, and you can own a piece of gold and you don't know it, like mobile phone, speaker to computer, there is a demand of gold OUTSIDE currency reserve, thus effectively putting Gold outside the possible replacement of USD.

Gold as a store of value of wealth is evergreen, every Indian housewife instinctively knows this. It is the only investment which can protect you from central bank led fiat currency system. Bankers hate it, that is why gold was confiscated from private citizen in US and US citizen where not allowed to posses gold till 1964
Executive Order 6102 - Wikipedia, the free encyclopedia

 

[TruthSeeker]

January 17, 2016 9:08 am
China’s new Asia development bank will lend in US dollars
Gabriel Wildau in Shanghai and Tom Mitchell in Beijing

The China-led Asia Infrastructure Investment bank has ruled out lending in currencies other than the dollar, its new president said on Sunday, signalling that Beijing will not use the development bank as a platform to promote renminbi internationalisation.

The AIIB formally opened for business on Saturday, just 27 months after President Xi Jinping proposed the institution as both rival and partner to existing institutions such as the World Bank and Asian Development Bank.

“The demand for infrastructure development in Asia is enormous,” Mr Xi said in a speech.

“The founding and opening of the AIIB also means a great deal to the reform of the global economic governance system. It is consistent with the evolving trend of the global economic landscape and will help make the global economic governance system more just, equitable and effective.”

Analysts say renminbi lending by AIIB would have presented challenges since most member countries likely contributed equity in dollars, and borrowers would have little use for renminbi unless they relied on Chinese suppliers.

Even for China, the bank’s creation is partly an effort to find more profitable investment channels for itsforeign-exchange reserves, which are now mainly invested in low-yielding US treasuries.

China has long complained that existing multilateral institutions are dominated by western powers. Last month the US Congress approved long-stalled reforms that will increase China’s voting share in the International Monetary Fund. In November, the IMF also endorsed the renminbi as a global reserve currency alongside the dollar, euro, yen and pound sterling.

The Beijing-based AIIB has $100bn in equity and 57 founding members. Legislatures from 30 of these have already ratified the bank’s charter, while approval is still pending from the remainder. China’s 26 per cent voting share will force China to build consensus with other members but also preserves Beijing’s veto power, as the bank’s charter requires a 75 per cent supermajority for important decisions.

Mr Xi said the AIIB would work together with existing multilateral institutions and draw on their knowledge and experience.

The bank’s council of supervisors elected Chinese finance minister Lou Jiwei as council chairman, and its board of governors chose Jin Liqun, former chairman of China International Capital Corp, the first Sino-foreign joint-venture investment bank, as AIIB’s first president for a five-year term.

“We have a good pipeline of co-finance and standalone projects,” said Mr Jin on Sunday at the first board of governor’s meeting. “Infrastructure is key for broad-based social development and poverty reduction.”

At its establishment ceremony in late December, Mr Lou said the bank expected to grant its first loan by midyear. On Sunday, Mr Jin said the first loan approvals are expected “by the end of the year”.

The creation of AIIB is one of Mr Xi’s signature foreign policy accomplishments. The US opposed the bank and urged western allies not to join, but after the UK broke ranks and announced its intention to join, other countries quickly followed.

“AIIB is a financial organisation established at the initiative of Asian countries, and that Korea has participated in the establishment of this initiative is itself quite meaningful,” South Korean finance minister Yoo Il-ho told the Financial Times on Sunday, adding that the bank will “bring vitality to the large-scale Asian infrastructure market”.

Beijing has also spearheaded the creation of the New Development Bank, which also has $100bn in capital, alongside fellow Brics countries Brazil, Russia, India and South Africa.

World Bank and ADB officials have said they welcome the new institutions, but critics worry that AIIB will not adhere to strict human rights, labour, environmental and corporate governance standards.

http://www.ft.com/intl/cms/s/0/762ce968-bcee-11e5-a8c6-deeeb63d6d4b.html#axzz3xVtl2EH4

 

[jhungary]

Sir you must be from krugman school of economics to state that zero interest rate stimulate economy . It simply keeps your real estate, stock market and commodities inflated. It does not allow free market to do price discovery. Do tell how easy it is for millennial to buy an house since prices have been kept artificially inflated. Normally what used to happen was when economy was hit Central banks would lower the rate. For example during dotcom burst FED rates are given

from 2001 to 2004 they kept interest rate around 2 to 1 & that is the period when real estate bubble was formed later on they raised it back to 5%. Now since 08 crisis fed has kept the rates at zero can you imagine what sort malinvestment and bubble have formed due to such low interest rate. Central banks cannot normalize interest rate back to 6 to 7 percent or it will pop up the bubble.
Such low interest rate are not meant for stimulating the economy but to keep stocks value up. Now tell me good sir if you repeatedly do quantitative easing(money printing) and keep low interest rate so aren't you repeating Zimbabwe or weimar republic style monetary policy.
Check out this chart

By the looks of it we are staring at another market crash after all, all bubble must pop. So what will central bank do now interest rate are already at zero or probably they will keep the interest rate to negative as they have done in sweden . Or they might do Bail in just like what they did in cyprus(Stealing depositors money)
The Cyprus Bank 'Bail-In' Is Another Crony Bankster Scam

Ah, of course, another backyard economist.

But hey, of course you are right, the 0 interest rate did nothing but sending out more mortgage to pop up the real estate market, it DOES NOT encourage more spending by discouraging saving account, nor it DOES NOT encourage more lending with 0 or near zero borrowing rate, thus it DOES NOT allow more mall business to enter the market by the way of business loan, and of course it DOES NOT allow medium and large enterprise to use the borrowing to consolidate their own debt and increase market influence by expanding their business.

On the government side, , it DOES NOT allow the federal government to buy back the Treasury bond, and it DOES NOT free up asset for the equity base debt and invest them into other infrastructure project. It of course DOES NOT allow a free market based the Federal Bank cannot decrease their interest rate anymore, and hence it DOES NOT allow influx of US dollar back into US Treasury.

So yeah, you are right, since both Zero Interest Policy and Quantitative easing DOES NOT do all that, they are simply just there so my property and my stock keep inflated.

In case you are wondering, I am being sarcastic

Gold as a store of value of wealth is evergreen, every Indian housewife instinctively knows this. It is the only investment which can protect you from central bank led fiat currency system. Bankers hate it, that is why gold was confiscated from private citizen in US and US citizen where not allowed to posses gold till 1964
Executive Order 6102 - Wikipedia, the free encyclopedia

lol, number of thing you get it wrong.

1.) The EXO 6102 does not ban all gold trade, only Gold Bullion, Coin and Certificate are banned for civilian ownership, as they are sees as strategic asset. Gold Jewellry and some collector item were still free to process.

2.) THe EXO 6102 were established on the backfoot of Trading with enemy acts in 1917, which basically established so no US gold were used to finance someone elses war, not because of the gold standard.

3.) Well, of course gold is a good investment, but iall your indian housewife are waiting on gold to turn to take over fiat currency, then you better wait forhell to freeze over, the reason why this is not happening is simply the reason why all indian housewife are hording the gold.

I think we can write this up as another needed intellectual spanking...

But then...Give the 'America-is-collapsing-China-dumping-dollar' subject a rest a few weeks and another fool is going to post another idiotic 'analysis' of the same subject.

well...........like Forrest Gump said 'Stupid is as stupid does" it just ring true here.

 

[Lonely Hermit]

Ah, of course, another backyard economist.

But hey, of course you are right, the 0 interest rate did nothing but sending out more mortgage to pop up the real estate market, it DOES NOT encourage more spending by discouraging saving account, nor it DOES NOT encourage more lending with 0 or near zero borrowing rate, thus it DOES NOT allow more mall business to enter the market by the way of business loan, and of course it DOES NOT allow medium and large enterprise to use the borrowing to consolidate their own debt and increase market influence by expanding their business.

On the government side, , it DOES NOT allow the federal government to buy back the Treasury bond, and it DOES NOT free up asset for the equity base debt and invest them into other infrastructure project. It of course DOES NOT allow a free market based the Federal Bank cannot decrease their interest rate anymore, and hence it DOES NOT allow influx of US dollar back into US Treasury.

So yeah, you are right, since both Zero Interest Policy and Quantitative easing DOES NOT do all that, they are simply just there so my property and my stock keep inflated.

In case you are wondering, I am being sarcastic

Ahh I like your optimism but all fiat system always end up with same intrinsic value that is Zero. The worst part is the whole world is resorting to same loose monetary policy so we might all be in the same boat.

3.) Well, of course gold is a good investment, but iall your indian housewife are waiting on gold to turn to take over fiat currency, then you better wait forhell to freeze over, the reason why this is not happening is simply the reason why all indian housewife are hording the gold.

People do not consider Gold in India as an investment but as an Insurance, whenever price of gold goes down people starting hoarding precious metal but if it goes up they never sell it off. We are a 5000 year old civilization, we hoard gold out of instinct.
Indian people hold 20,000 tonnes of gold | MINING.com

 

[Providence]

@Spectre @jhungary @Providence
I am afraid the whole world is heading towards Japan style stagnation.
When Japanese real estate bubble popped Japan's central bank reduced the interest rate to 0 and since then they have been using loose monetary policy with no result.
Graph Japanese interest rate BoJ - long-term graph

This has lead to stagnation in their economy since

The FED, ECB, PBOC have followed the same loose monetary policy that is print money to escape deflation
In 2008 when we where hit with crisis Ideally what should have happened was fed would have allowed the market to collapse. This would have popped the inflated bubble just like it happened during great depression in 1929. But instead all the central banks in the world followed loose monetary policy.
Graph American interest rate FED - long-term graph

Graph European interest rate ECB - long-term graph

Graph Swedish interest rate Riksbank - long-term graph

Swedish interest rate are negative such a loose monetary policy has inflated a bigger bubble.
This level of quantitative easing and loose monetary will lead to Weimar republic or Zimbabwe style HyperInflation .

Hyperinflation not much but this trend of competitive devaluation of currency can wreak havoc to any small or medium sized economy. What the situation has created is a huge bowl of free flowing cash which is looking for investment avenues. If the capital flow is not controlled, this money can create huge asset bubble in any economy and when prices will crash, the economy will be down on it's knees. Google Dutch disease !

 

[Lonely Hermit]

Hyperinflation not much but this trend of competitive devaluation of currency can wreak havoc to any small or medium sized economy. What the situation has created is a huge bowl of free flowing cash which is looking for investment avenues. If the capital flow is not controlled, this money can create huge asset bubble in any economy and when prices will crash, the economy will be down on it's knees. Google Dutch disease !

What all the central banks are trying to do is fight of 1929 style deflation or depression. They are all backed to a corner since like Japan none of them can raise interest rate or it will pop up all those bubble which have formed. The future looks quite depressing for our generation .

 

[Providence]

What all the central banks are trying to do is fight of 1929 style deflation or depression. They are all backed to a corner since like Japan none of them can raise interest rate or it will pop up all those bubble which have formed. The future looks quite depressing for our generation .

I am sure every generation have their own set of issues and problems to face. Your negative attitude might be counter productive in long run is what I would like to assert here.