Thoughts On “Analysis Of Recent IMF Report On SDR Adjustments “
Original Post: LINK
deejj87: This analysis was superb, very detailed and comprehensive. One thing I’m wondering, is how many more units of SDR could be created… if Gold is used as an anchor of backing for SDR creation, then is a limited number of SDR’s able to be transfered?
Do you think the USD in the IMF’s substitution accounts could somehow be tied to SDR bonds? Perhaps even if there is a decrease in Value of USD over time and the IMF is the one absorbing the losses, the USD could be tied up and used to back or pay out long-term SDR bonds until the US has experienced their own monetary reform and restructuring over the next few years… or I may be out to lunch!
Jcollins: Potentially there could be a unlimited number of SDR created, much like the USD today. It is my hope that there are measures and restrictions put in place to self-limit the amount of SDR which can be created. In regards to SDR bonds, we could see the losses on USD subsidized in any number of way, one could very well be on SDR bonds.
That would require larger changes to how the SDR functions, and would require SDR to be sold directly to central banks. This would in essence be accomplished by SDR bonds which would in turn create the SDR liquidity which we have discussed here.
chuc1997: If gold is used in any way, won’t that require a revaluation of gold higher in order to not simply exchange USD’s for USD-denominated gold?
Jcollins: The gold could be denominated in RMB, or even SDR. You are thinking the right way, but timing will be the issue. The cheaper gold is when the deposits are made the more the losses on USD can be subsidized when gold increases again in value.
I’ve always stated my opinion that gold would go a lot lower during the transition, before increasing again after. This could be what we are looking at. It’s been a long drawn out analysis and process, but the end methodology is beginning to take shape.
Don’t expect gold to go to $5000.00/oz, or $10,000.00/oz, as many proclaim. It will settle within a reasonable band to support the SDR and substitution account framework.
At least until the demand to remove the self-limiting valuations are acted on and mass over creation of SDR pushes the monetary system once again into new forms of imbalance, such as countries not being able to maintain their weight within the SDR because of poor domestic fiscal policies and production inefficiencies.
The solution offered at that time will be the evolution of the SDR basket into the actual bancor currency, just like the ECU evolved into the euro, and the ACU will evolve into an actual Asian currency. That’s a big answer to your question. Thanks for giving me the opportunity to get some other ideas out. Haha
chuc1997: Great article by the way
chuc1997: Thanks for the thoughtful answer. It leads me to a follow on question, which is if gold is really the only mechanism to depreciate the dollar that does not result in making other nations’ economies wildly uncompetitive, given the debt amounts involved, doesn’t that necessitate a fairly high valuation for gold in the end game?
Jcollins: Gold revaluation is not a mechanism to depreciate the dollar. That is not what I communicated. It has nothing to do with depreciating the dollar.
The dollar will depreciate against other currencies when the reserve demand for dollars decreases. Gold will not be at the center of this monetary framework, just like it wasn’t the center of Bretton Woods.
The gold will be placed on deposit at lower prices so that when it appreciates marginally down the road, the losses accumulated on dollar depreciation can be gained back by the appreciation of gold. This will help balance the portfolio of the IMF. Does this help explain it better?
Cramley: “The gold will be placed on deposit at lower prices so that when it appreciates marginally down the road, the losses accumulated on dollar depreciation can be gained back by the appreciation of gold.”
Here’s your problem. You have it backwards. Gold will start high in real terms and gradually lose value. The dollar unit will depreciate, but compensates the dollar holder by what mechanism? In what form are most dollars held as? Physical currency or some sort of time deposit?
It’s interest rates. That’s what missing from your analysis. The Chinese understand this. They know gold is not an inflation hedge. It’s a debt extinguisher, a debt reconciler.
The monopoly board gets kicked, golds gets revalued, then another generation sings sunshine lollipops and rainbows along the inflation highway as wealth climbs back up Exter’s Pyramid.
Jcollins: I disagree. Thanks for the input.
The ultimate arbiter of gold’s new equilibrium price band will be total sovereign debt. This alone produces a crazy number. Then throw in unfunded liabilities, OTC derivatives, yada yada yada…you get the picture.
The key is at what price will gold delever the globe. At what gold price will there be enough debt extinguishment. For that is the problem. Debt service is presently incompatible with what many consider normalized interest rates.
Jcollins: There is a measure of accepted failure built into the transition. Some derivatives will collapse, and some will not. Some sustainable segments of derivatives will be repackaged and the unsustainable segments will be allowed to fail, or be written off.
Gold will not be leveraged to save the world. That is gold bug propaganda pure and simple. Large swaths of private debt will be allowed to fail while large swaths of public debt will go through a form of debt restructuring, likely the SDRM process of the IMF.
When the balance of payments challenges begin to be corrected, the debt of each sovereign will begin to be more serviceable based on adjustments to the debt-to-GDP ratios.
I have been correct so far when it comes to gold. There will never be $10,000 gold, or even $5000.00. We’d be lucky to see $2000.00 gold within the next 20 years. Period.
Anything else is just inflammatory nonsense. Sorry Cramley, I have to call this one as I see it. I can take the attacks from the gold bugs, because in the end they are their own worse enemies. But I’ll tell you what, the lower gold goes in the coming months, the more I’m likely to accumulate myself.
Cramley: Do you know how leverage works? How it works in reverse when collateral falls in value? Are familiar with rehypothecation? Do you realize how markets will react to just a hint of sovereign restructuring?
Jcollins: Haha, do you understand the difference between fantasy and reality? Your approach will get you no where here Cramley. As per past exchanges between us. You just put strings of thoughts and concepts together to sound like you know what you’re talking about.
The reality is that I have been correct at every step of my thesis, while you have been continuously wrong. Period. No Argument. Be very careful what you promote. People have lost life savings because they listened to fantasy talk about gold going to $10,000/oz.
Do you honestly want people to lose their life savings because they listened to you? If it sounds too good to be true, it is. Stop wasting my time with this drivel of outrageous valuations for gold.
It has been proven ridiculous time and time again, and will continue to be proven as such. Gold will not be the savior of the international monetary system and make everybody which has some rich.
It will continue to go down. And when it does go up, it will take years and most people that got in at anything over $1200.00/oz will not see positive returns for years.
As I said, I disagree with you, but appreciate the input. Now stop coming into my house and trying to overturn the apple cart. The wave of facts, events, and evidence is building against your script. You will not sway truth.
PS. Your questions, when considered alongside the content of information which I present here, is frankly absurd.
Gainsmore which is way this is all bs….. they sell short paper gold to prep this conversion/ backing of devalued USD that the IMF will be holding should tell you that they are trying to save themselves from decades of fiscal criminality. They do not want to half to atone for their collective fiat sins.
What makes the IMF super-sovereign? Paper backing more paper? The math is still the same- debt cancellation by issuing more debt while paying interest is not possible. They are robbing the value of hard assets to back their fake money
Jcollins: It’s supra-sovereign, not super. Big difference.
Dottie Derewicz: Excellent article JC. Zero Hedge should have had you write an article. I know of a number people using their article, so misinformation is getting out there.
Speedspirit: If Gold is just a pretty “pet rock” then why all the concern.
The reason for all the concern is someone is taking possession of it at bargin prices and in the end those with the Gold own the planet. SDR’s are temporary and just another ponzi scheme.
“For those who don’t know, the PRGT is the Poverty Reduction and Growth Trust program which was established in 2009. The program was designed to lend to members a total of SDR 700 million, which would come from the profits of gold sales.”
Who is selling Gold for profits? 700 million does not go very far in the hands of government. And to say it is for poverty reduction, What a joke.
“They” will need to keep Gold out of this SDR basket as much as possible. It is only a relic. Paper is the real deal. Digits are even worth more. Debt is the salvation.
Gold and Silver are too scarce to prop up the inflated worth of companies who over pay those who bow to the masters at the top of the global war machine. Mother Nature is not going to remain silent about this.
When she freaks paper, digits and promises will not buy you food, land or water. By the time things get back to normal you who put faith in men and their system will be dead. Ah this will be the population reduction JC was waiting for Natural Selection.
Daneackerman: “By the time things get back to normal you who put faith in men and their system will be dead.”
No the truth is “The greatest gift in this life is to be in service to others.”
Yes I know this to be true. Thank you for the opportunity to share this great piece of wisdom which I was reminded of, by a dear friend.
“Ah this will be the population reduction JC was waiting for Natural Selection.”
Oh and I very highly doubt that your idea here is anywhere near what JC was saying.
Cramley: Then why did China go thru the trouble of accumulating 10,000 tons by the end of 2014? Much of that at much higher prices than today.
“Till the end of 2014, the gold reserves reach 9816.03 ton, the world’s second [ to Eurozone] “, Zhang Bingnan Chairman and secretary-general of China Gold Association, 25 June 2015.
Jcollins: I explained a potential reason in the post which you’re commenting on. Perhaps you didn’t understand.
Comments may be made at the end of Part 2 Thank You