U.S. Dollar Substitute

[AM43]

U.S. Dollar Substitute to Go Public on Oct 20th?

Any truth to this and what it means to investors?

http://thecrux.com/dyncontent/dollar-substitute-coming/?cid=MKT035907&eid=MKT042439

[forummm]

Sorry, I couldn't read it through my tinfoil hat.

[johnhenry]

I'm looking forward to the day we have a global currency.... but ONLY after we have a global government!!  There's already an experiment underway where an entity issues currency for use by sovereign nations: the Euro.  And the only way it will succeed in the long run is by uniting those countries under one government.  I'm not holding my breath.  I don't have anything against the idea of a unified Europe or even a unified Earth.  But at this point language and cultural differences are too large.

What's wrong with storing your wealth in the form of tax credits issued and accepted by the sovereign government of which you are part??  You would rather have some other entity printing the money, saying how it gets created and how it gets paid back, while your government makes all the other rules???  What sense does that make?!?

Governments create money to measure and collect obligation from their citizens, not for the purpose of giving them a convenient way to barter or store wealth.  When we start making policy that reflects that, we'll be a lot better off.

[shotgunwilly]

We already have that. It's called Bitcoin.

[Bob W]

I'm looking forward to the day we have a global currency.... but ONLY after we have a global government!!  There's already an experiment underway where an entity issues currency for use by sovereign nations: the Euro.  And the only way it will succeed in the long run is by uniting those countries under one government.  I'm not holding my breath.  I don't have anything against the idea of a unified Europe or even a unified Earth.  But at this point language and cultural differences are too large.

What's wrong with storing your wealth in the form of tax credits issued and accepted by the sovereign government of which you are part??  You would rather have some other entity printing the money, saying how it gets created and how it gets paid back, while your government makes all the other rules???  What sense does that make?!?

Governments create money to measure and collect obligation from their citizens, not for the purpose of giving them a convenient way to barter or store wealth.  When we start making policy that reflects that, we'll be a lot better off.

Very few Government actually create money these days although I wish they did.  Banks and Central Banks create money through fractional banking.  So yeah,  I wish that banks would get out of the money creation game.  On the other hand I dearly wish that our dear US would simply start printing money instead of this forced taxation and borrowing from the Fed BS. 

Bitcoin is a great idea and I hope it will catch on. 

[tdogz]

Sadly, this has nothing to do with what they says it does. Here is what the Wall Street Journal has to say... http://www.wsj.com/articles/u-s-influence-hinges-on-future-of-dollar-yuan-1429120648

China is now lobbying for the inclusion of the yuan in the basket of currencies that comprise the IMF’s own currency, the “special drawing right,” or SDR. The yuan remains a long way from being a genuine reserve currency. Since the SDR is only used within the IMF, the yuan’s inclusion is largely symbolic.

The article you linked to said, "According to Juan Zarate, who helped implement financial sanctions while serving in George W. Bush’s Treasury department, “Once the [other currency] becomes an alternative to the dollar, rules of the game begin to change.”

Why edit out the name of the other currency in the quote if you are being on the level? A quick Google search revealed the actual quote, “Once the yuan becomes an alternative to the dollar, rules of the game begin to change.”

And Mr. Zarate's comments were taken out of context. He wasn't referring to the IMF change on October 20th, but to some distant future when the Chinese central bank is considered credible and stable enough that other nations might use the yuan as a reserve currency. That day is not even visible on the horizon at  the moment.

[rocketpj]

I'm looking forward to the day we have a global currency.... but ONLY after we have a global government!!  There's already an experiment underway where an entity issues currency for use by sovereign nations: the Euro.  And the only way it will succeed in the long run is by uniting those countries under one government.  I'm not holding my breath.  I don't have anything against the idea of a unified Europe or even a unified Earth.  But at this point language and cultural differences are too large.

What's wrong with storing your wealth in the form of tax credits issued and accepted by the sovereign government of which you are part??  You would rather have some other entity printing the money, saying how it gets created and how it gets paid back, while your government makes all the other rules???  What sense does that make?!?

Governments create money to measure and collect obligation from their citizens, not for the purpose of giving them a convenient way to barter or store wealth.  When we start making policy that reflects that, we'll be a lot better off.

Very few Government actually create money these days although I wish they did.  Banks and Central Banks create money through fractional banking.  So yeah,  I wish that banks would get out of the money creation game.  On the other hand I dearly wish that our dear US would simply start printing money instead of this forced taxation and borrowing from the Fed BS. 

Bitcoin is a great idea and I hope it will catch on.

I disagree, without fractional banking we don't have an economy to work within.  What we've lost is fractional banking in exchange for transactional banking - where banks issue debt then sell it into the markets and walk away.  This we don't want, because accountability in the creation of money through debt is gone.

The notion of fractional reserves are crucial - we wouldn't get interest on bank deposits if they couldn't be loaned out to someone else at a profit.  Without that the entire economic system of loans and interest would not work - individuals and businesses could not get loans, and the only way to start a venture would be to have cash in hand - which would short circuit most new ventures.

That said, there are plenty of people who get fired up about the banks, with good reason.  They just misunderstand the problem.  There was a reason banks were prohibited from trading for most of the 20th century, and a reason that the shit hit the fan when they finally were allowed to trade again.

[johnhenry]

I'm looking forward to the day we have a global currency.... but ONLY after we have a global government!!  There's already an experiment underway where an entity issues currency for use by sovereign nations: the Euro.  And the only way it will succeed in the long run is by uniting those countries under one government.  I'm not holding my breath.  I don't have anything against the idea of a unified Europe or even a unified Earth.  But at this point language and cultural differences are too large.

What's wrong with storing your wealth in the form of tax credits issued and accepted by the sovereign government of which you are part??  You would rather have some other entity printing the money, saying how it gets created and how it gets paid back, while your government makes all the other rules???  What sense does that make?!?

Governments create money to measure and collect obligation from their citizens, not for the purpose of giving them a convenient way to barter or store wealth.  When we start making policy that reflects that, we'll be a lot better off.

Very few Government actually create money these days although I wish they did.  Banks and Central Banks create money through fractional banking.  So yeah,  I wish that banks would get out of the money creation game.  On the other hand I dearly wish that our dear US would simply start printing money instead of this forced taxation and borrowing from the Fed BS. 

Bitcoin is a great idea and I hope it will catch on.

I disagree, without fractional banking we don't have an economy to work within.  What we've lost is fractional banking in exchange for transactional banking - where banks issue debt then sell it into the markets and walk away.  This we don't want, because accountability in the creation of money through debt is gone.

The notion of fractional reserves are crucial - we wouldn't get interest on bank deposits if they couldn't be loaned out to someone else at a profit.  Without that the entire economic system of loans and interest would not work - individuals and businesses could not get loans, and the only way to start a venture would be to have cash in hand - which would short circuit most new ventures.

That said, there are plenty of people who get fired up about the banks, with good reason.  They just misunderstand the problem.  There was a reason banks were prohibited from trading for most of the 20th century, and a reason that the shit hit the fan when they finally were allowed to trade again.

Sorry guys.... that's not how it works.  :(   We HAD a fractional reserve system.  Had.  But we are no longer on the gold standard.  There are several relics of that era left in our national laws dealing with the treasury and the fed.  Those relics create illusions.  There's an illusion that as a government we "borrow" money because we pay interest on bonds.  The interest we pay to bond holders is created out of thin air just like the money paid to Boeing to build a fighter jet or deposited via SS into your grandmother's bank.  Another illusion/misconception is that "fractional reserves" are still required.  Banks ARE IN NO WAY reserve-constrained!!! Banks are capital-constrained.   Anyone who has ever worked at a bank knows this (edit: should know this :) ).  Seriously, when was the last time you went into a bank because you thought you had a loan lined up... and due to a bid withdrawal at the bank that day, were told that the bank would have to delay your loan because it does not have the reserves?!?!  Banks are in the business of making loans to creditworthy customers and I can assure you, if you are a credit-worthy borrower with assets as collateral, any bank will make you a loan.  If a bank doesn't have the reserves AND it can't obtain them from another bank, THE FED IS REQUIRED (not allowed, required) to provide them.  Fractional reserve banking "made sense" in a gold standard world because there really was a finite amount of money because there is a finite amount of gold.  What sense does it make in a world of fiat money?

Yes, our banks are regulated, but not reserve-constrained!!  Yes, they do "create" money, but they basically do so "on behalf" of the government.  But they do not create "net financial assets" the same way government does.  Banks do create money out of thin air by just crediting an account of the loan recipient, but they also create an offsetting account on their side that is paid down as the loan is paid back.  Of course the interest paid by the recipient must be paid with money that was originally created by the government.  So banks get paid to create money for people who need it by the people who need it and they do so within the regulatory framework of the government. 

[Malaysia41]

Despite his redundant sales pitch for the first portion of the presentation, I endured.  He gets some facts wrong which made  me hyper skeptical of the rest.

I think it was fact #3: that China holds 20% of US debt.  Um, no.  It holds roughly 10%.  I'm not sure if this matters beyond indicating he's liberal with his 'facts'.

He says that inclusion of China by the IMF as a reserve currency is as big a deal as when we moved away from the gold standard in the seventies. Okay, sure, maybe it's a big  deal.  And then he goes on to assume that this is exactly the same phenomenon as that event.  I don't see it.  So he's pretty much saying 'buy a special sub-set of assets that increased in value in the early seventies - and I'll tell you all about them if you buy my newsletter'.  Hmm.. Go on...!

Also, he states that as soon as China is deemed a reserve currency, money will swoosh to renminbi*.  But then, a few minutes later he makes the case that big banks and countries are already using the renminbi as reserve currencies.  HSBC (of course), Citibank, BofA, etc.  Well, if they already are trading in renminbi and have adequate reserves to support that trade, the potential swoosh is dampened no? 

Lastly, he says his suggestions will likely bring about a 500% return on investment.  Uh, er, uh. Talk about selling penis enhancement pills. At least those actually work (or so I've heard).

His step #1: prepare
Step #2: obtain my book  #1
Step #3: obtain my book #2
Step #4:  the slides stopped playing I missed it - oh no! 

 He spun this same story in 2008.  It's a call to buy gold coins. 

*I don't call it yuan, my Chinese college looked at me as if I was nuts when I worked with him in Beijing.   

That all said, I'm NOT buying gold coins, but, now my interest is somewhat piqued regarding the inclusion of China as an official reserve currency by the IMF.  I'll pay more attention as news comes through the wire.  But that's about it.

[Rural]

He says that inclusion of China by the IMF as a reserve currency is as big a deal as when we moved away from the gold standard in the seventies. Okay, sure, maybe it's a big  deal. 

Maybe, but it happened in 1933.

[MMMaybe]

I don't keep a lot of money in Yuan but I've got some in case all of these tin foil hat guys are right!

[Malaysia41]

He says that inclusion of China by the IMF as a reserve currency is as big a deal as when we moved away from the gold standard in the seventies. Okay, sure, maybe it's a big  deal. 

Maybe, but it happened in 1933.

YES!  That was a sloppy error on my part.  Thanks for pointing it out.

Nixon removed ability to convert dollars to gold on demand in the seventies - that's what the guy was referring to.   

[Bob W]

He says that inclusion of China by the IMF as a reserve currency is as big a deal as when we moved away from the gold standard in the seventies. Okay, sure, maybe it's a big  deal. 

Maybe, but it happened in 1933.

YES!  That was a sloppy error on my part.  Thanks for pointing it out.

Nixon removed ability to convert dollars to gold on demand in the seventies - that's what the guy was referring to.

Yet still in 1980 the US had enough gold to cover cash in the system.   Now,  thanks to massive printing gold would need to sell at 40,000 per ounce to cover the cash in the system.

Here is an interesting bit of history ---

In the entire history of governments issuing fiat money not a single currency has survived long term.   

One might also notice that the Chinese aren't big on the US dollar anymore and no longer consider it a reserved currency.  They in fact are buying gold by the ton. 

So this always leads me to laugh when tin hat people on this site mention SWRs and average return on investments predicted over the next 50 years.    They can't predict who will play in the super bowl in 9 months but they are damn sure investments will go up.     

[rmendpara]

There will likely be something in between the USD today and some future currency which is liquid and reasonably stable.

Today, the experiment is Bitcoin. Maybe it succeeds. Maybe it doesn't. But something similar that is not regulated directly by all governments and which people are broadly willing to accept as payment is likely to come to fruition.

To a much more limited extent, even reward points are a "currency" of sorts that in some cases can cross intl. borders. Things like Marriott/Hilton/etc rewards can be redeemed all over the world (with some limitations) and exchanged for a good/service. Hopefully something a bit more freely transferable will come about someday, but not quite yet.

The biggest challenge I see is wide enough adoption. Once it reaches scale, who knows what could happen.

[Numbers Man]

I personally don't believe any economic report issued from China and I wont trust them enough to hold their currency. I have a feeling a lot of other people feel the same way.

[BarkyardBQ]

I don't know enough about these things to provide any input but these two articles are on MarketWatch this morning... thoughts?

http://www.marketwatch.com/story/blame-the-next-global-financial-crisis-on-the-us-dollar-2015-05-06

http://www.marketwatch.com/story/china-to-unveil-monetary-tool-that-the-world-has-never-seen-2015-05-05