A single clause in Point 19 of the communiqué issued by the G20 leaders amounts to revolution in the global financial order, reports Ambrose Evans-Pritchard.
At this point, it is only, as Ben Bernanke would put it, a new "tool" for central banks in dealing with each other. But, it is step one in replacing the dollar as the reserve currency. The powers that be opted to introduce this "new" currency under the guise of simply cranking up SDR's (the IMF's Special Drawing Rights) a bit. Thus, resulting in even less scrutiny than if the G-20 would have had to announce that "a new reserve currency" has been created. But make no mistake that is what is going on.
Evans-Pritchard continues:
"We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity," [the communiqué] said. SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century.The defacto world currency is about global inflation. The currencies that now exist will stand, but behind these currencies, at the central bank level, will be SDRs. Any country that is falling behind in the quantitative easing game will get a new dose of SDR money. Pressure on the dollar internationally? No problem. The dollars will be bought up with SDRs. At least that's the plan, replace one voodoo expandable money (the dollar) with an even more high tech expandable voodoo currency (SDR's).
In effect, the G20 leaders have activated the IMF's power to create money and begin global "quantitative easing". In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body. Conspiracy theorists will love it.
Will the Asians buy into this new voodoo? Who really knows? They bought into the dollar for a long time. Or will they eventually start demanding some of the non-expandable money, gold? Time will tell.
As for the average investor, when things have gotten so bad that the government is monkeying around with new methods of money printing, it becomes obvious that owning some gold is where you need to be at.
Let's not forget that Soros was a major cheerleader for SDR's under the guise of aiding developing nations, as espoused in his FT op-ed last month. His verdict on the G20 meeting: "Success". http://www.businessinsider.com/soros-calls-the-g20-a-success-2009-4
ReplyDeleteSOROS: THEY MANAGED TO GET MORE THAN I EXPECTED. THEY REALLY PULLED A FEW RABBITS OUT OF THE HAT, AND I THINK IT WAS A VERY IMPRESSIVE COMMUNIQUÉ...
BARTIROMO[Money Honey TM]: WHY?
SOROS: WELL, THEY MANAGED TO PUT TOGETHER A BIGGER PACKAGE THAN ANYBODY EXPECTED. AND VERY IMPORTANT IS THE ISSUE OF SPECIAL DRAWING RIGHTS. $250 BILLION. THAT IS EFFECTIVELY CREATING - INTERNATIONALLY CREATING - NEW MONEY. AND THAT WILL HELP TO ALLOW THE COUNTRIES THAT ARE NOT ABLE TO PRINT THEIR OWN MONEY THE WAY WE CAN, ACTUALLY TO STIMULATE THEIR ECONOMIES. AND I THINK THE WAY FOR THE RICH COUNTRIES TO TRANSFER THE ALLOCATIONS TO THE MOST NEEDY COUNTRIES CAN BE WORKED OUT.
...
BARTIROMO: GEORGE, THE CHINESE SAID THAT THERE SHOULD BE ANOTHER OPTION AWAY FROM THE U.S. DOLLAR AS THE RESERVE CURRENCY. DO YOU AGREE WITH THAT?
SOROS: IN THE LONG RUN THAT MAY BE APPROPRIATE. IT'S NOT IN THE CARDS NOW...
BARTIROMO: LONG TERM WHAT WOULD THE CURRENCY BE? WOULD IT BE THE CHINESE YUAN?
SOROS: NO. I THINK THE DOLLAR IS THE DOMINANT CURRENCY FOR A WHILE TO COME. BUT IN THE LONG RUN I THINK IT WOULD BE IMPORTANT THAT THE U.S. SHOULD BE SUBJECT TO THE SAME DISCIPLINE AS THE REST OF THE WORLD.
The whole thing is worth a read. In his op-ed, Soros expressed doubt that SDR's would be brought up at all. He seems genuinely surprised that this happened so soon. I wonder how they pulled those "rabbits" out.
What is your opinion on this article?
ReplyDeleteRole of special drawing rights likely to be limited
http://www.ft.com/cms/s/0/deba71a6-2242-11de-8380-00144feabdc0.html