SDR #25 – World Money

Some thoughts by Jim Rickards on “world money”.

US dollar should be strong but the FED depreciates it on an ongoing basis.
SDRs will be issued again by the IMF (US controlled) when a liquidity crisis happens because the FED is too overleveraged to do it again with US dollars.
SDRs that are gold backed as opposed to being backed by nothing (like the US dollar) is his preference although the original world money concept of a BANCOR had a larger commodity basket backing (that included gold).
SDRs are not money people will be carrying around.

Be defensive ! Do you understand the threat ??! I think all this means we should have some investments in commodities like oil, gold, potash, uranium, etc ???!

#13 SDRs – The Preferred Solution of Global Elites

 

So why would anyone want to use SDRs ?   This is taken from a transcript of a Peter Schiff interview of Jim Rickards. 

Peter: (Jim) In your book, you lay out four possible results from the present currency war. Please briefly describe these and which one do you feel is most likely and why.

James: Yes, I lay out four scenarios, which I call “The Four Horsemen of the Dollar Apocalypse.”

The first case is a world of multiple reserve currencies with the dollar being just one among several. This is the preferred solution of academics. I call it the “Kumbaya Solution” because it assumes all of the currencies will get along fine with each other. In fact, however, instead of one central bank behaving badly, we will have many.

The second case is world money in the form of Special Drawing Rights (SDRs). This is the preferred solution of global elites. The foundation for this has already been laid and the plumbing is already in place. The International Monetary Fund (IMF) would have its own printing press under the unaccountable control of the G20. This would reduce the dollar to the role of a local currency, as all important international transfers would be denominated in SDRs.

The third case is a return to the gold standard. This would have to be done at a much higher price to avoid the deflationary blunder of the 1920s, when nations returned to gold at an old parity that could not be sustained without massive deflation due to all of the money-printing in the meantime. I suggest a price of $7,000 per ounce for the new parity.

My final case is chaos and a resort to emergency economic powers. I consider this the most likely because of a combination of denial, delay, and wishful thinking on the part of the monetary elites.

Peter: What do you see as Washington’s end-game for the present currency war? What is their best-case scenario?

James: Washington’s best-case scenario is that banks gradually heal by making leveraged profits on the spreads between low-cost deposits and safe government bonds. These profits are then a cushion to absorb losses on bad assets and, eventually, the system becomes healthy again and can start the lending-and-spending game over again.

I view this as unlikely because the debts are so great, the time needed so long, and the deflationary forces so strong that the banks will not recover before the needed money-printing drives the system over a cliff – through a loss of confidence in the dollar and other paper currencies.

http://www.safehaven.com/article/24294/peter-schiff-speaks-to-james-rickards-author-of-currency-wars

I still view the SDR (maybe defined differently than today’s basket of four currencies) as a very likely option with a return to the gold standard as a long shot.   Elites (international corporations, big banks and powerful politicians etc) would love the fixed 5 year currency peg of the SDR!!  Why ?  You can plan around it. 

Oh … I guess the global elites could add gold to the SDR basket of currencies, but why ?  Would that then be defined as a gold standard ?

 

 

 

 

#12 SDRs – The Making of the Next Global Crisis

 
Let’s go to the Max Keiser interview of Jim Rickards and his new book “Currency Wars: The Making of the Next Global Crisis”.
 
Jim Rickards still sees the ultimate game plan for the world as moving from printing up more $US dollars and Euros, to printing up more SDRs and then ultimately going back to a Gold standard. 
 
It’s all about the race to the bottom for all currencies but before the world resets on gold there will be an attempt to use SDRs, which according to Jim was  ironically nick named ”Paper Gold” when they were created in the late 1960s.  Since SDRs count as reserves it would likely kick the can down the road alittle further until confidence failed in their use.
 
Jim reminds us that the US is still the world gold super power and that it would naturally make sense for it to leverage this power if the US wants to win the upcoming currency war.  In fact he was an advisor for the first Pentagon sponsored financial war game where there were no kinetic or destructive weapons used.  The weapons were currencies, stocks, bonds and derivatives.
 
On the subject of a gold standard not working Jim says it is a fallacy that there is not enough gold and that a gold standard could not once again work.  According to Jim there might not be enough gold to support world trade at $1700/ounce but there certainly would be if it were priced right, which means higher.  He gives the low end of the range at $3000 per ounce and the high end as $44,000 per ounce.   These are all values he believes are supported by various ratios of gold, currency and debt in existence today.