ECONOMICS, FREE POM, GEOPOLITICAL
Real World Facts, China’s 3rd Plenum, and Global Integration
By JC Collins
The use of propaganda to further geopolitical and socioeconomic objectives are complex methods of positioning arguments and manufacturing preconditioned counter arguments. This ‘seeding of the field beforehand’ has become commonplace, predictable, and can be trended with relative ease.
When American Senators openly state that China should be barred from having their currency added to the SDR composition because of the threat of computer hacking, the obvious nature of the counter move becomes apparent and predictable.
The United States does not have the veto influence to stop the RMB from being added to the SDR, as it takes a 70% vote to make changes to the basket composition.
This differs from the 2010 reforms to the governance structure and quota system, as 85% is required to make those changes. Which falls within the parameters of US veto power.
Not being able to directly influence and prevent the addition of the Chinese currency into the SDR is not a position which America likes. And it can’t be assumed that just because the propaganda is now being disseminated that the US doesn’t actually want the RMB in the SDR.
What it tells us is that they want the RMB to be included on their terms, not the terms of China or another group of countries, such as BRICS.
Speaking of BRICS, the Brazilian representative to the International Monetary Fund, one Paulo Nogueira Batista Junior, will be the new vice president for the BRICS Development Bank.
This assignment of an IMF representative to a senior position within the BRICS bank should be a wakeup call to anyone who still thinks that the BRICS institutions and the AIIB will be operating outside of the existing monetary framework and global institutions.
Those who promote the fantasy that China and BRICS are going to overthrow the western banking system, and destroy the American dollar have no concept of the broader macroeconomic and macroprudential engineering which is taking place throughout the international institutions and regional institutions, of which both the BRICS Bank and AIIB are becoming integrated with.
Both were in fact designed specifically for the purpose of integrating eastern monetary policies with those of the international institutions.
There are those, like Jim Willie, who maintain their shtick and carry on in an unprofessional manner while promoting this make-believe fantasy analysis of the overthrow of western banking.
Tactics used to distract from the real arguments and push ‘back alley propaganda’ are name calling and character assassinations of everyone who disagrees with his position. The favorite targets of this “analyst” are usually James Rickards and Christine Lagarde.
For the record, I despise bullies and consider them the worst of humanity, as well as the weakest; which is why I have decided to write this post. Though I do understand I’m taking a risk of being perceived in a similar fashion for writing this piece to begin with. It’s a case of necessity overriding niceness.
The *** **** proclamations of Mr. Willie are not based on the economic and political realities which are taking place in the global monetary system.
When information first started being presented here on POM about the SDR, Mr. Willie was explaining that the IMF was broke and the SDR would never happen. It was stated that China would have nothing to do with the SDR.
When both the IMF and China came out with official announcements about having the RMB added to the SDR, the propaganda from Mr. Willie shifted and he began to promote the idea that China joining the SDR was going to be a Trojan horse which would destroy the institution from the inside.
First, if the IMF was broke and the SDR was junk, why would China even need to act as a Trojan horse to destroy the IMF. It’s an absurd conclusion.
Second, notice how the story changed when the fantasy analysis ran directly into the factual wall of the real world. This change in scripting will continue as more facts and realities become obvious. Watch for the signs of change in the storyline.
These are the tell-tale signs of propaganda and false analysis.
Another real world area which contradicts these make-believe conclusions involves the data reporting standards of the International Monetary Fund. The SDDS, or Special Data Dissemination Standards, is something China has implemented.
The purpose of the SDDS is to have China become more integrated in the global economic framework while embracing transparency on reporting standards. Implementing the SDDS standards will also allow China to gain greater access to international capital markets.
Access to capital markets is something which is extremely important to China’s 3rdPlenum Blueprint.
Some of the goals and targets of the 3rd Plenum involve slowing domestic growth for the purpose of shifting the economy on to a more sustainable growth path.
Implementing a reduction in excess savings is a strategy to lower investment for the purpose of making the remaining investment more productive.
Boosting domestic consumption and moving further towards a high income status are also targets of the 3rd Plenum.
The overall goal is to move China to a full market-based financial system. This will include a complete liberalization of deposit rates, which will help establish an interest rate policy. The interest rate policy can then be used as the primary tool to adjust monetary conditions and signal monetary changes.
China’s external position is focused on reducing account surpluses and slow the accumulation of foreign reserves. This is the opposite of the goal of the United States which is to reduce its account deficits and reverse the accumulation of USD in foreign reserve accounts.
As such, a reduction in accumulation of USD by China is not a sign that China is “dumping the dollar” and will crash the American economy, as proclaimed by Mr. Willie. It is in fact the opposite, as the macro policies and multilateral architecture begins to adjust the systemic imbalances in the unipolar USD system.
A further appreciation of the RMB will facilitate the achievement of the goals and targets as defined in the 3rd Plenum and those outlined by the International Monetary Fund. Both align within the transition to the multilateral framework.
Both China and the IMF also agree that additional changes are needed to the exchange rate of the RMB with a focus on greater flexibility.
Both the SGE gold funds denominated in RMB and the AIIB are meant to increase the internationalization of the renminbi as it attempts to catch up with the USD in both volume and confidence.
Same as the vast amount of bilateral swap agreements and the inclusion of the RMB in the SDR. None of this implies a gold standard overthrow of the dollar.
The US is attempting to manage these changes to ensure that as much dollar hegemony as possible can be retained within the multilateral system. I’ve explained in many previous posts how the United States needs and wants the transition away from the reserve status of the dollar.
Both China and America recognize the need for a supra-sovereign unit of account which can be used to correct the imbalances in the current and receding unipolar system.
The Triffin Paradox and decades of history confirms the need for a multilateral asset. For Mr. Willie, and many others, to continue to ignore the realities of this transition and lead thousands away from the truth is a tragedy.
The SDDS reporting and statements from China themselves on the need for a multilateral system, and the building political pressure to have the RMB added to the SDR are clear signs of the factual nature of the analysis presented here on POM.
The transition is progressing as reviewed here over the last 18 months with only minor variations in timing. The overall trend is clear and cannot be denied.
The false script of China and BRICS overthrowing and collapsing the western banking system continues to be dismembered by the emerging facts and realities of the multilateral transition.
The 3rd Plenum and the assignment of an IMF representative to the position of VP within the BRICS Development Bank offer further proof for those who need it. People need to arm themselves with facts and not listen to the propaganda and foolishness of those who ignore those facts.
Facts are forever and fallacies are forgotten. – JC