"In the End, we will remember not the words of our enemies, but the silence of our friends." -MLK

Monday, March 26, 2012

Loosing Altitude

Those who've followed the FairView over the past few years are familiar with the idea that the US dollar is being setup to one day lose it's world reserve status. Back in 2009 we discussed an article by Larry Edelson entitled, "A Sneak Peek at the Future...". In that article Edelson pieced together quotes from world leaders calling for a "seismic shake-up of the world currency structure" and concluded that behind closed doors these world leaders were planning for a new world reserve currency.  The following are the quotations he referenced:

arrow French President Sarkozy recently declared, "We must rethink the financial system from scratch, as at Bretton Woods" ... and that it's time to "change the rules of the game." 
British Prime Minister Brown touts "a new global financial order," describing this as a"decisive moment" for the world economy to adopt a "new Bretton Woods." 
European Central Bank council member Ewald Nowotny calls into question the"centrality of the U.S. dollar" and further states that the U.S., Europe, and Asia are developing a "tri-polar global currency system to replace the current dollar-centric reserve structure with more centers of gravity."
At the recent World Economic Forum, Russia's Prime Minister Putin explains that "Excessive dependence on a single reserve currency is dangerous for the global economy."
The People's Daily, the official newspaper of the Chinese Communist Party and the unofficial mouthpiece of the Beijing government, warns of the threat of a "financial tsunami" and urges action. "The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."
On March 19, the United Nations Commission on Reforms of International Finance and Economic Structures, chaired by the 2001 Economics Nobel Prize-winning economist, Joseph Stiglitz, recommended that the dollar be replaced as the world's reserve currency.
On March 23, the People's Bank of China (PBOC), China's central bank, proposed replacing the U.S. dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.
[The entire article can be viewed here and is well worth the read]

Edelson also made a recommendation to 'keep your ears tuned to the media for phrases like "new financial architecture" ... "new monetary system" ... the "rules of the game" ... "Bretton Woods II" ...' and referred to them as "cover words that will ultimately spell a dramatic change in the value of money."

In April of 2011 "hundreds of the economic policy elite gathered in Bretton Woods, New Hampshire" for what has been labeled Bretton Woods 2. "Bretton Woods is where the world leaders met [in 1944] and constituted a post-war world monetary order. This choice reflected the aspiration to bring order out of what clearly is monetary policy anarchy."

In the wake of the 2008 financial collapse and the crescendoing debt crises currently plaguing Europe, the world is again experiencing a type of monetary anarchy.  As it did in 1944, the infrastructure is being set in place for the emergence of an entirely new monetary system.

In the past week two news stories have come out giving a glimpse of this system.  The first is that the Saudis and China are teaming up to build a gigantic new oil refinery in Saudi Arabia.  The reason this is such a huge development is that "back in 1973 the United States and Saudi Arabia agreed that all oil sold by Saudi Arabia would be denominated in U.S. dollars".  Since that time virtually all oil sales on the planet have been  done in US dollars, creating a exceptional demand for the USD being involved in global trade. China and Russia took steps back in 2010 to sidestep the dollar and began "using their own currencies for bilateral trade".  The Saudi-China refinery would solidify China as Saudi Arabia's "most important trading partner" and is begging mass speculation that the two countries will soon begin trading without using the USD.  The new refinery is slated to become operational sometime in 2014. 

The second major news story is that South Africa is going to begin endorsing the Chinese renminbi as the currency of trade in emerging markets.  One more step away from the USD with China interestingly right there in the mix.

As this post-dollar trend continues, the lessening demand will continue to drive down the dollars ability to purchase goods and services on the global market.  Expect rising prices in the US, especially on commodity based products such as food, fuels, metals and materials.  Also expect a rise in acceleration as the dollar continues to loses altitude. Remember panic never prevents anything.  Reach up, reach out and prepare for impact.

[Update] India abandons US dollar to purchase Iranian oil - 3.29.12

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