Post From KTFA By Memphis » March 16th, 2014,
This essay is a wonderful compliment to our study in the Key to Everything, the IMF 2010 Code of Reforms that is sitting in Congress attached as an unassuming rider to another bill that will provide aid to Ukraine.
I expect that some of you will walk away from THIS post with added clarity to things that have alluded you in some measure. [Yep, speaking from experience here.] Blessings, Memphis
The New Exchange Rate System
February 19, 2014 M1 Money Supply and Inflation By JC Collins
Purchasing Power Parity and Arbitrage are two terms that everyone should make themselves aware off as the world’s economy moves closer toward a centralized SDR trade system through the International Monetary Fund with accounts balanced by the Bank for International Settlements.
Purchasing Power Parity is the balance between exchange rates when there is also balance in the domestic purchasing power of the currencies.
Arbitrage is taking advantage of the price imbalances between markets and profiting from the market differentials.
Arbitrage cannot exist alongside Purchasing Power Parity.
M1 money supply refers to physical currency as well as checking account deposits.
For your reference, M2 money is M1 money plus savings accounts and money market accounts.
And M3 money is M2 money plus large deposits and other long term large deposits, such as larger liquid assets as well as short term repurchase agreements.
Keep these terms in mind as we further define the structure and mechanisms of the emerging multilateral system.
As an extension to the SDR’s and the New Bretton Woods series, let us discuss a much talked about and confusing aspect of the system. When the currencies of the world are released from their peg to the dollar and pegged to the SDR supra-sovereign currency which we have been reviewing, there will in fact be a new exchange rate structure.
What this structure will be has not yet been made available to the general population. All the talk of specific exchange rates and timing of release of the rates are not founded in facts or accurate information.
[[Memphis note: The following is an example of what I have been calling "linear thinking". Collins is pointing to the seeming conflict as to how a currency base can be expanded (money printing) and there not be a visible corresponding DECREASE in that currency's value in the market.
These discussions are not a simply cause and effect where we can point to one thing and make a doctrine out of it. Yes, I am beating this drum often but for good reason. In the "comments section" below you will read this same observation made.]]
And on the flip side of that there are those who are stating that a Global Currency Reset is a conspiracy theory. To these people, those that proclaim such a future “event” apparently do not understand the micro and macro of economic fundamentals or how exchange rates and money supply truly work.
Their argument appears very logical on the surface. As a country increases its money supply through debt creation and currency printing, the value of that currency decreases. More money in circulation means more devaluation of that currency, basic supply and demand principles.
So how can a currency revalue upward when there is so much of it in circulation? Makes sense right? Wrong.
If the key performance indicators (KPI) of any countries M1 money supply were that elementary, then we would live in a much simpler world. We can make many examples of why this isn’t the case but none is more obvious than that of the U.S. dollar itself.
If more money in circulation meant a decrease in the value of that currency on the exchange rate market, then the dollar would be almost worthless today, much like the dong and other currencies. More U.S. debt (money creation) has been added in the last 6 years than the entire history of the U.S. itself, from George Washington to George W. Bush.
Yet the dollar’s exchange rate has maintained itself within a small range of fluctuation. The reason that the dollar has maintained this exchange rate over the years tells us that there are other KPI’s which need to be factored into the equation when measuring a countries exchange rate and inflation level, outside of direct manipulation of course.
Some of these indirect KPI’s are imports and exports. And there is no direct relationship between M1 money supply increases and inflation.
Since 1944 the U.S. dollar has been the reserve currency which means that international trade imbalances have been settled in dollars. This forced other countries of the world to hold dollars which allowed the U.S. to export the majority of its inflation.
As the U.S. printed more money, expanding its M1 money supply, the inflation which should have settled domestically was in fact exported to the very same markets that were forced to hold a reserve of U.S. dollars in order to balance their trade accounts.
[[Memphis note: On the micro level, the above also relates directly to our discussion of Iraq's desire to "de-dollarize". While no fiat currency can be defined as a good store of value, this is a further layer to our invasion of Iraq and the imposed change to their currency's value that is not even spoken to, in that we have forced them into the use of USD for many years now and they are ready to be rid of it MUCH like the example given here in the next sentence RE: Vietnam.]]
As we reviewed in “Why the Vietnamese Dong Will Reset”, the State Bank of Vietnam was indirectly forced into devaluing their currency in order to attract trade and also be a dumping ground for U.S. inflation as the Vietnamese people used the dollar instead of the dong in their everyday lives.
As the new centralized system of SDR allocation emerges between now and 2018 we will see less U.S. dollars in the foreign reserves of other countries. As an example, in the last 5 years Vietnam has decreased their dollar holdings by almost 50% and at the same time have increased their gold holdings dramatically. Interestingly enough, their SDR holdings also increased by a factor of more than 400%.
The question of what Vietnam will do with the trillions of dong that are now in circulation is a legitimate question. When the exchange rate of the dong adjusts to reflect the economic reality within the country, these trillions of dong cannot be in circulation, as it would create an M1 money supply that is disproportionate to the actual economic weights used for the SDR composition.
Therein lays the solution to the problem.
Keeping with our pattern theme of transitions from micro to macro states, we start with the process of the dollar, the world’s reserve currency, being printed and exported to the central banks of the world to facilitate trade. The inflation and exchange rate decreases that would be logically associated with this increase in the M1 money supply is hidden or sunk into the markets of the emerging economies.
As the world shifts towards the SDR system we will see a similar process unfold. In essence, Vietnam will export their inflation (current M1 money supply) into the SDR bond system just like the United States has been exporting its inflation into emerging markets and countries like Vietnam through trade imbalances. What we will see is Vietnam slowly begin to buy back the dong in circulation and re-capitalize it through the SDR bonds.
Once a predetermined level has been achieved the rest of the dong M1 money supply will remain in circulation and be pegged to the multilateral SDR and not the U.S. dollar. In fact we are beginning to see this process unfold already in the numbers we presented above. This slow trickle will eventually become a stampede out of dollars and into SDR’s. It will be the same for every country.
[[Memphis note: the above is likely the best explanation of this process (to both visualize and digest) that you are likely to find anywhere. Two points, we should note here that not only is this transition out of the $ being implemented (present and past tense) but he makes reference to an eventual "stampede" out of the USD.
Yesterday I made note of some signs that an acceleration may be manifesting. Tho to early to make solid statements, it is of value to us to follow.]]
The U.S. debt [of various nation's] will also be rolled into SDR’s and factor[ed] into the overall economic weight of that country’s SDR composition. This is where the substitution account we referenced in Part 6 of the SDR series becomes invaluable.
This substitution account will act as a transition market for dollars to SDR’s to ensure that current holders of U.S. debt do not see that asset value decrease dramatically as the system shifts. China will utilize this substitution account just as much as the United States Treasury and Federal Reserve.
[[Memphis note: there is SO MUCH fear being spread these days that is baseless. If you will commit this next sentence of just six (6) little words to memory? It will serve you well.]]
China will not be dumping dollars. They will transition the dollar debt which they hold into SDR’s through this substitution account. The one aspect that is holding the process up right now in the American Congress (2010 Code of Reforms) is how this dollar to SDR transition will factor into China’s overall SDR composition for the renminbi.
[[Memphis note: The above sentence AGAIN illustrates to us that these discussions are, at times, quite complex. I predicted Friday that our Congress would pass this legislation and yet failed to accept for possible factors at play that would prevent! Shame on me.
The reality that we must accept then is that we study and speculate to the best of our ability but must always acknowledge that certain variables/unknowns are above our paygrades.
Re-reading his last sentence above, it is a clear expression that this "Key to Everything", the IMF 2010 Code of Reforms, encompasses some pretty complex algorithms AND possible negotiations (politics) besides! And so we wait.
Reading his next sentence, I am reminded of recent months when I pined for someone to explain to me how the big "GCR" made any sense separate from the sovereign debts of all nations.
As I now climb this new ladder of understanding these words often ring in my ears: "...careful what you wish for" Make the brain hurt.]]
This is one of the hardest aspects of this new system to understand, which is why it is still being negotiated. It would do us well to spend more time in the future exploring the different angles involved in the Great Consolidation aspect of the Global Currency Reset. One cannot exist without the other. It has been intentionally designed this way.
Most don’t know this, but the Syrian pound is already pegged to the SDR, and has been for about 5 years. One can only speculate if this has something to do with the civil war in the country.
What some analysts don’t factor into their equations is how much the economic system of the world will change, and is changing, as we move towards the multilateral monetary system with all the currencies of the world pegged to the SDR.
For those who doubt the reality of this new system, the volume of information that has been available and is coming available would seem to prove its existence.
The new system will create Purchasing Power Parity and at the same time eliminate Arbitrage. Arbitrage is one of the economic weapons that the small rent seeking elite use to transfer wealth from the larger disorganized masses.
The M1 money supply will most likely also be redesigned to more accurately measure the weights of the new SDR system. – JC Collins
[[Memphis note: some of the readers on his blog seem quite thoughtful to me. The 1st one below is a perfect example. I like many of his points and propose that he embodies here many of the positions that I have been trying to put forward.
The main value being that, we must all think more for ourselves and rely less on what we are "fed" by others. As such I will refrain from highlighting the points below that I agree/disagree with!
After all, my aim is not to reproduce myself or even to force my thoughts on others but rather, to get the whole group thinking more deeply with some added focus as to those items that carry value DESERVING of our time. Not an exact science eh?]]
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