My unpublished (100,000 word) book “The Financial Jigsaw”, is being serialised here weekly in 100 Issues by Peter J Underwood, author
HAPPY NEW YEAR EDITION
Laugh of the year – but seriously a warning to all for 2020!
https://www.zerohedge.com/personal-finance/compulsive-gambler-sues-casino-letting-him-lose-260000
Quote of the Week: Investors don’t fully comprehend what happened in Cyprus. In the event of future bailouts, bank depositors will lose a percentage of their money. Money in the bank isn’t 100% safe anymore. – Marc Faber
NOTE – If anyone would like a free updated, 3rd edition, electronic copy of the complete book, I should be pleased to email a free pdf on request to: [email protected]. The book has many footnotes linking to relevant and explanatory Appendices, websites and videos.
This week is the start of the New Year and I wonder what it will have to offer? Certainly we are at serious risk of a global recession and an asset price adjustment (to put it mildly) which is why I draw your attention to the quote above as a salutary reminder. Not to mention the risk of all-out war with Iran judging by the latest US drone attack taking out their top commander!
This article is worth a read as a review of last year. It notes: “A convalescent NATO is in search of a facelift to merit attention.” I would say NATO is looking for an ‘enemy’ to justify its existence! https://www.gatestoneinstitute.org/15349/interesting-year
I said last week that: “the year end is going to be either a crash or a damp squib; it all depends on how the Fed reacts”. Well, now we know: “It was supposed to usher in a market crisis that would prompt the Fed to launch QE4 according to repo guru Zoltan Pozsar. In the end, the pre-emptive liquidity tsunami unleashed by the Fed in mid-December which backstopped just shy of $500 billion in liquidity, proved enough to keep any latent repo market crisis at bay: https://www.zerohedge.com/markets/year-end-repo-crisis-ends-whimper-amid-massive-liquidity-glut AND: https://www.zerohedge.com/markets/price-year-end-market-stability-414-billion
On January 2nd the Fed has moved to (illegal?) monetisation: “In other words, the Fed is already conducting Helicopter Money (and MMT) in all but name.
“Perhaps during Fed Chair Powell’s next Congressional hearings, someone actually has the guts to ask the only question that matters: why is the Fed now monetizing US debt, and pretending it isn’t doing so just because it grants Dealers a 3-day “holding” period, for which it then rewards them generously?”
But the next few weeks will see whether the Fed will keep it up or try to ‘normalise’ again. If the USA goes into meltdown then in all probability the President can invoke emergency laws – but what does it involve? Listen to this 3min video to understand how extensive these powers are:
https://www.youtube.com/watch?time_continue=20&v=lTOs7KqRgOk&feature=emb_logo
In addition there are more problems brewing for Trump as Germany entertains working closer with China on 5G technology and continuing with the NordStreamgas pipeline from Russia to secure essential energy facilities. Of course this will again weaken the hegemony of the US dollar as all transactions will be in euro. The USA is totally against these moves and has threatened sanctions – their weapon of choice. Gerry has a great article about this: https://boomfinanceandeconomics.wordpress.com/
This week, as promised, we move to the ‘Preface’ which is new in the 3rd edition. In choosing this I needed to find an article which would adequately describe how our fiat currency system came about, by chance perhaps, rather than by design. It was conceived in the aftermath of a crisis born out of the problems of the US dollar being redeemable in gold and in 1971 a run had occurred.
As a temporary measure; (it’s always temporary to start with, like QE and USA 1913 Income Tax and also in UK: Income Tax was the first tax in British history to be levied directly on people’s earnings. It was introduced in 1799 by the then Prime Minister William Pitt the Younger, as a temporary measure to cover the cost of the Napoleonic Wars.) fiat floating exchange rates were introduced as the Bretton Woods agreement finally failed on 15th August 1971.
Here is the link to last week: Issue 84
Now that Brexit is certain on 31st January 2020, I will continue to provide weekly updates as events progress:
Brexit Update – 3rd January 2020
The Brexit deadline remains 31st January 2020 and Parliament has agreed the new exit plan (WAB): https://www.bbc.co.uk/news/uk-politics-50125338 The bill will progress through several readings in Parliament and the House of Lords before becoming law at the end of the month.
You may follow a daily run-down on the current situation from my friend, Dr Richard North, as Brexit progresses: http://eureferendum.com/ I have said before, Brexit is a process, not an event.
“The EU is playing a dangerous and disingenuous game with the UK. Here we go again. The EU trade commissioner Phil Hogan tells the world Boris Johnson will cave in. What’s that supposed to accomplish? The EU failed to learn anything from Brexit, any step of the way.” He’s not even involved, Barnier is. Hogan should shut his big mouth:
Parliament is now in Christmas recess so no more Parliamentary information until next week. Details of Parliament’s deliberations when sitting can be found here (but not up yet):
Now that the UK is definitely leaving EUROPE – I will continue to comment on relevant EU – UK events:
This article summarises fairly well where we have come from and where we might be going in 2020:
“Also for Western Europe, the influence of this fight will be immense. Concerning this matter, the UK is the most advanced country in Western Europe. After a struggle of three and half years, the population has given a clear mandate to the Johnson government to deliver Brexit. It is probable that now, where this central question is resolved, the development in the UK will be quite dynamical. The formation of a national imperialism will advance quickly. France also is rather well prepared for a victory of the American national imperialism; with the period of de Gaulle in the 1960s, she has a historical model.” And “There is still another problem. While national imperialism has a long tradition in the UK and in France and will probably be accepted without too much resistance, in Germany, national imperialism is not popular, for historical reasons. Therefore, one may predict that Germany will have a big debate on her political identity; even a profound crisis is possible.”
http://thesaker.is/review-of-2019-and-preview-for-2020-the-final-combat-of-western-hegemonism/
AND this written by a German!: “But herein lies Europe’s core dilemma. To be relevant enough to propose and enforce its view of the world, Europe needs to accept reality. Competition, conflict, and nationalism are defining features of today’s world. Europe must start playing a game that it detests.”
The 3rd edition of The Financial Jigsaw issued recently includes a Preface, Epilogue and Appendices which I will publish here in advance. First, here is the Preface:
PREFACE
How 1971 Changed Everything in the Economy
This book is not all about money although much of it relies on money as a backdrop. In choosing a Preface I thought about summarising how our financial system of fiat currencies worldwide has come about. It was fortunate that I found this article which the author has graciously agreed for me to edit and reproduce here as an introduction to the history of our money systems.
The full article Via Duino Schiappapietra, may be accessed here: https://medium.com/swlh/from-gold-to-nothing-5bd86c0231be
The monetary system is a major component of the whole economic system. Despite that, today we take it for granted and don’t even ask ourselves how it works and if it is the best solution available or the correct way to manage things. Even though it appears to be stable, history shows that monetary systems changed periodically in the last century, some 20–30 years on average.
The main difference between our current monetary system and previous monetary system is that today it is entirely based on FIAT currency in contrast to older monetary systems that were backed by gold. That means that what we call money is a government-issued currency that has zero intrinsic value and is not backed by anything.
From 1971, this kind of system allows central banks to literally control the economy and opened a new chapter in the world monetary system. Since 1971 the world runs on FIAT currencies that are not gold-backed in any way. This changes everything. Before digging into it, we have to review some history.
The Bretton Woods System and It’s Collapse
Towards the end of the World War II, peace was a real concern and it was clear that the world needed a new monetary system able to support the economy. In fact, one of the major reasons that led to World War II was the failure in dealing with economic problems after World War I.
The Bretton Woods agreement was signed at a conference between allied nations in 1944. Before the agreement, most countries followed the gold standard, meaning that each country guaranteed to redeem its currency into gold. After Bretton Woods, countries agreed to exchange their currency for U.S. Dollars. Central banks committed to keep fixed exchange rates with the dollar while the U.S. committed to keep the parity between U.S. dollars and gold at 1/35 of an ounce of gold.
The dollar was backed by gold at 1/35 oz. and foreign countries committed to keep fixed interest rates with the U.S. dollar. Why U.S. dollars? In those years America held two-thirds of the world’s gold reserves and after the war was obviously the most influential player among nations. This put the U.S. into a dominant position and Bretton Woods paved the way for the shift from the gold standard to the U.S. dollar standard.
The Bretton Wood system worked for a while and allowed for economic growth but unfortunately, a series of imbalances brought the system to its end in a matter of three decades from its inception. Towards the 1970’s the United States were facing a period of stagflation, a situation where you have high inflation coupled with a recession, something very bad for the economy. In the attempt of resolving the situation America started devaluing the dollar and kept running deficits to fund various projects.
The parity between dollar and gold was the cardinal element of the Bretton Wood system after it changed the whole monetary agreement soon after collapsed. Every country started quickly to redeem their devaluing dollars for gold generating a run on the U.S. gold reserves. In response, on 15 August 1971, the Bretton Woods agreement broke up, ending the convertibility of the dollar in gold.
NOTE:
An electronic copy of the ‘Part 2 Introduction’ is available on request to: [email protected]
To be continued next Saturday
“Money in the bank isn’t 100% safe anymore.” – Marc Faber
Nice quote, Peter.
After heeding the European actions with Greece, Cyprus, and our own MF Global fiasco as warnings, the wife and I got proactive and relocated certain assets to our personal control. We had heard of random rumors regarding Bank of America customers finding safe deposit boxes emptied of hard assets, cash, and jewelry. I suspected it was happening to people who did little regular business.
Thieves are everywhere, at every level.
Well said e.d.ott, thank you for your valuable advice – I hope others listening will heed your concerns. You have done well to protect your assets.
Never listen to the politicians, they will rob you blind and the banksters too. Stay safe and keep ammo nearby. Go well dear friend.
One day the Chinese (and Russians) will issue a gold backed currency for general global use and that will send the NY Fiat Dollar into a death spiral to crash and burn. The NY Dollar will have to stay Fiat because the NY Banksters long ago stole all the US Treasury’s gold. When the NY consumer has to EARN Chinese Yuan (or Rubles or Euros etc) to buy Chinese products (or BRIC products), the US Trade Deficit will disappear. I just can’t see millions of fat, lazy, know-it-all urban liberals toiling in the Sun to grow their own food to eat, and carrying their honey pots to their gardens every morning. I’m certain that NY Yankees will try to create another form of slavery to impose on Americans.
Very true Robert, thank you and I smile at the image you have created – obese New Yorkers toiling in the sun to earn their daily crust- that should be fun!