In the last fifteen months, from August 1, 2104 to November 27, 2015,
International Reserves, as calculated by Bloomberg, have fallen three-quarters
of a trillion ($752 billion) dollars, or 6.52%.
International Reserves peaked at $12.032 Trillion on August 1, 2014, and have
fallen since then to $11.28 Trillion on November 27, 2105.
Central Banks increase their Reserves by purchasing Government Bonds -
denominated in Dollars, Euros, Pounds or Yen - when
those currencies come into their hands as a result of a surplus of exports over
imports; all countries strive to have such surpluses, because if they are not
able to export more than they import, then they are condemned to devalue their
currencies in order to make their exports more attractive; they are also
burdened with higher interest rates on their borrowings, as a result of the
threat of further devaluation. Higher interest rates in turn, exacerbate the outflow of Reserve
currencies and make devaluation all the more necessary.
The fact is that countries holding
Reserves have not been paid for the totality of their export surpluses. To hold
Reserves is to grant credit. The proof is that Reserves held by the exporting
countries are Bonds, that is to say, certificates of debt. The last figure for
International Reserves, as of November 27, is $11,280,000,000,000 Dollars - $11.28 Trillion Dollars.
The figure nicely documents the total value of what the exporters of the world
have sold to the countries which issue Reserve Currencies, and for which they
have not been paid, since August 15, 1971.
At the present time, the system at work since the end of World War II is
operating in reverse. Reserves are falling, the majority of which are held in
Dollars. Government Bonds held as Reserves are being sold off. An important
contraction in world commerce is taking place.
The exporting countries are not
obtaining excess funds (from their exports over their imports) with which to
purchase Government Bonds for Reserves. On the contrary, a flight of Capital from the
exporting countries to the Reserve issuing countries is taking place, and the
Central Banks of the exporting countries are selling off their Reserves, to
provide funds for the Capital flight.
When 6.52% of the total Reserves has
been sold into the market, one would expect the value of the related Bonds to
fall, and their interest rates to rise, other things being equal. If their
interest rates have not risen, it must be due to the generosity of the buyers
of the Bonds. Perhaps the entities that show such generosity in their purchases
are the same entities who sold the Bonds in the first place, the Federal
Reserve among others?
The Fed and the ECB have been in
comfortable position of lowering interest rates and thus raising the value of
the Government Bonds they sell. When the long term Bond rate is lowered from 4% to 2%, the value of
those Bonds tends to double. But when the 2% rate rises just a bit to 2.25%,
the value of the long term Bond falls very sharply. The Fed and the ECB must
buy back the Bonds which are being sold in this liquidity crisis, or else the
whole Bond universe collapses.
China's Yuan has recently been
accepted by the IMF, to form a part of its "basket of currencies" and
as of Oct. 1, 2016 the Yuan will be anointed as a Reserve Currency by the IMF.
When that happens, China will have its own Reserve Currency, and less need to
maintain its present enormous pile of Reserves in Dollar and Euro Government
Bonds. So the sell-off of International Reserves might become even stronger.
The Fed and the ECB have enjoyed selling Bonds at ever higher prices and ever
lower interest rates, so low that in Europe these Bonds have a negative yield.
They will have to develop an appetite for Bonds, because China is going to send
a bunch of them back to the sellers when the Yuan achieves Reserve Currency
status. As China liquidates a portion of its Reserves, guess what China is
going to buy with the Dollars and Euros it receives for its Dollar and Euro
Bonds?
The majority of Reserves are held in
Dollars, as we have said, and when the Dollar Bonds are sold, they are sold for
Dollars to satisfy the Capital flight, and buying the Dollar makes its relative
value rise. From a low
point, some years ago, of about 71 against a basket of currencies, the Dollar
has appreciated to 100 at the present time, increasing the strain upon
debtors (in the exporting countries) who owe Dollars by some 41%. The strain
upon the debtors increases the urgency in getting out of Dollar debt and
stimulates the related Capital flight.
What we are witnessing these days is a
mighty contraction in economic activity around the world, that reinforces
itself. International Reserves are being sold off in a desperate search for
liquidity. The contraction was originally seeded by a slow-down in the
economies of the Reserve-issuing countries, i.e., USA, Britain, Europe and
Japan.
The Chinese evidently have some plans
which they are not divulging, for we see that China is purchasing huge amounts of gold. In the
meantime, the US insists on trashing the price of gold, as if to say that the
Dollar is and will remain the world's supreme currency till the end of time.
China is quietly accumulating gold and
saying nothing. But we can try to guess what China is thinking: "The US is
mired in an insoluble problem. Do nothing to provoke the US. The US will destroy
itself in a huge collapse."
A world struggling with increasingly
severe economic problems is not a world that is going to be in the mood or in
condition to continue to respect international treaties regulating commerce,
much less such regulatory dreams as co-ordinate action on "Climate
Change".
What lies ahead is a situation where each country will attempt desperate
measures to ensure a minimum of internal stability. This explains such military/law enforcement operations
like Jade Helm. Treaties will be ignored or thrown overboard. Devaluations
around the world will proliferate; some countries will declare bankruptcy. The
gravity of the crisis will make these events inevitable. We have just seen India refuse
to abide by the rules of the World Trade Organization (WTO); the WTO rules say
that governments are not to grant subsidies to sectors of their economies. But
India is forced to subsidize its agriculture, because it has a population of
over 1 billion and 67% of the people depend on cheap food for survival.
So the statist international rules - emanating mainly from the US - to regulate
the whole world will be trashed, eventually.
When push comes to shove, China, with
1.3 billion or more population, will take unorthodox measures. The pressure of
the enormous population of China, made up of quite intelligent men and women,
is going to force its government to stop adhering to international covenants.
China will take whatever measures can offer hope to the Chinese.
China will then say to the world: "We sell cheap. Very cheap. But, we
sell for gold, for very little gold; and we
pay with gold for what we buy - for very little gold, but we pay gold. You want
our stuff, you find a way to pay us in gold. Or else, what do you have to offer
us, in exchange for our stuff? You have something we want - we pay in gold.
Rest of the world, do as you please."
The nations of the world are not going
to flounder endlessly in the crisis that is upon us. Out of the huge crisis,
China will break away and state its terms. And the terms will be: GOLD. The
rest of the world will follow.
The "Exchange Stabilization Fund" (ESF) of the U.S. Treasury has bought over a $1 trillion of foreigners U.S. Dollars as U.S. Dollar reserves have plunged worldwide. The ESF was created in 1934 from Gold confiscated from Americans. It is worth tens of trillions of dollar. It is a rogue entity that answers to no one. The ESF money does not appear on any government book, it is off book accounting. Watch Greg Hunter's interview of Rob Kirby concerning this.
https://www.youtube.com/watch?v=01k3bHSHRmM
This is what Hugo Salinas Price, pictured above, wrote about Bloomberg and the ESF. Bloomberg has been gathering data on the total of Central Bank International Reserves for
many years. Since December 1, 2010, the information has been updated every
Friday, and has been available on a Bloomberg website, accessible only by
subscription.
On
Friday, December 11, 2015 Bloomberg published no
information regarding International Reserves as of that date.
On
Friday, December 18, once more, Bloomberg published no information regarding
International Reserves as of that date.
Curiously
enough, on Monday, December 1, 2015, we published an article on this website, click here"The Crumbling World Order, and Who Will Pick Up
the Crumbs?" which pointed out that International Reserves
have been contracting since August 2014 and up to November 27, 2015, had
diminished by $752 billion dollars, or 6.25% of the total achieved at the peak
back in August, 2014. And we remarked that this contraction was unprecedented,
since we have data going back to 1948, and never, ever, has there been a
sustained contraction in the total of Central Bank International Reserves since
the creation of the present international monetary system in 1944, at Bretton
Woods.
In
our opinion, the present contraction of International Reserves announces a
secular change of trend to liquidation of international
debt and consequently to Depression.
Why
has Bloomberg decided to suspend the publication of International Reserves on its
website? Is Bloomberg hiding information from the public? Has Bloomberg been
pressured to suspend publication of sensitive data?
We
hope Bloomberg resumes publication of the important data on International
Reserves at once.
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