James Turk: Central Banks are Losing the War to Suppress Gold & Silver Prices

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Great discussion.  We are all clearly very worried about the US dollar.  I agree that intolerably high inflation would result if the dollars reserve currency status were substantially eroded.

I would like to suggest that our reserve currency status has many interlocking variables.  One that is often not factored in is the world’s dependency on the US's security services.

For example, it is the US navy that keeps the straights of Malacca open for super tanker transit and allows Singapore safe trade routes.   It is the presence of US forces in Korea that gives security for Japan, Taiwan, and S. Korea to trade.   Our security force presence in the Persian Gulf speaks for its self.   Our rivals clearly understand the necessity of our global military patrols.   I suggest this is a significant factor supporting US bond prices and the current resilience of the dollar's reserve currency status.

Importantly, I note that for the 1st time in ~20 years we are about to implement a major DoD funding reduction (the sequestration). These budget cuts will likely have a very large impact on our troop strength and naval vessels.  In my mind, these force contractions are necessary adjustments to the reality of our decaying means.  I also believe that as we necessarily withdraw from our global security role, nations will see proportionally less benefit in continuing to support the dollar as the reserve currency.

This may not be a decisive factor in the dollars rejection (and our bond prices)  but I do believe it will add a substantial further systemic stress.

Respectfully

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…and I have one very important question to ask: How much DEBT will be destroyed in the not to distant future before this bizarre Hyperinflation cycle begins (it never will is my guess)? I ask this only because what I am seeing, researching and musing on is a middle class getting the living HELL beat out of it, are intelligent enough to have thought their options through, and just how long do you think this will continue when a pain free balance sheet made " zero debt owed" is stamped on some official paper, in some court room by a Federal magistrate especially when the cost is but $500 dollar bankruptcy away?
I see a whole lot of printing and less and less Demand for anything. I see numbers that are bad, and were manipulated to not look as bad which in my world says, "things are really bad".

Just read the latest Fed reports. Philly Fed and such. These are the reported numbers, if it was better then they would have reported them, and if worse then these were the numbers they settled on which means these numbers could be way worse. I know this is paranoia speaking but I have been lied to, cheated, and have no faith in numbers as reported by our Government soooo, YIKES! 

Additionally, Europe has said that "everything is hunky dory" and that tells me flat out that things are even worse than we ever thought in Europe. Everybody lies about Europe just ask Junker, Junkman, Junkie, whatever his name is. Who's that dude with the fuzzy eye brows, leprechaun face, and has that truly evilness about his face that Nigel Farage (I absolutely LOVE THIS DUDE) keeps ripping?, Rambo, rumptyduppy, Rumpoy? Anyways, you Folks believe him all you want but that dude freaks me out and I call Bullshit with every word he speaks. Madame French Lady, well, you have no idea what my visuals of her are when I close my eyes because, well, locker room stuff so I won't share.

Everybody's darling is China, and well, I just think China is still developing, and until she has some maturity I will take her words with a grain of salt. I love China so don't get me wrong but like my little sister she will stomp her feet and scream like the dickens but, she's still my little sister (you can put little Brother here too if you feel better). You hear her/him but really, after living with 12 others just like them the noise gets muted out of the constant noise that is present always. Did I ever tell you that the cry of a baby is music to my ears? I love a babies cry, and can sleep hard when all hell breaks loose. I've been around lots and lots of babies.

China exports right? To whom may I ask? If we have a currency war as is being discussed then correct me if I'm wrong but that implies to me we are going to turn protectionist as a world reaction to this game being bandied about, Yes? So again, export to whom?

Who can buy anything as I hear China has all the cash that no one wants anymore even at zero percent interests! Those that do want the cash just want to pay down Debt so deflation, right? 

China would do the world a favor if she imported anything. Last I read she consumed something in the neighborhood of 35% in her economy and she should consume 50 to 60% just to meet world averages but the little brat is a hoarder and NOT a TEAM player. So when she grows up she will learn or fail because of her selfishness. We all do because the have nots will scream to take from the haves. Must have balance Folks.

I know, I know she has her supporters from the commodities exporters, neighbors, and they play silly games with each others currency, and do a little bartering but China has to realize she can't keep building bridges to nowhere, trains that no one travels on, cities to house millions of people and Malls that are bigger than most cities and NO ONE goes or lives there. Just how long will the commodity exporters just love China when she stops buying their commodities? I say they go talk with India, she's next up for those commodities are my thoughts. Have you followed the electrical issues in India? Man, how do people live like that? We may soon find out!

Japan's ninja economy is really fascinating to me, and I am a huge fan of Japan but Reinhart and Rogoff has spoken to me, and Japan is, well, sadly, toast.

I sense things are not as they appear, that printed paper has only increased Debt. Debt that was already in need of a good laundering, now we've added way more, and now what happens? I think the market can't go straight up especially when built on an illusion made of sand. Someone has to take their loses and I think that has to happen next.

Remember, I don't know anything, I truly am a student, and have no predictive powers in the least but I haven't lost sight of the fact that 2008 did happen, and everything that has been done since has most likely done jack shit to correct the fundamental problem that faces us. To darn much Debt and now we have more of it.

I am still confused as to why we didn't save housing first by creating a jobs programs in an energy build (natural gas and pipelines from Canada and the Bakkens, and rebuilt and modernized our electrical infrastructure. Added more rail because these type projects would be done in every corner of our country and benefit everyone in all those corners so the wealth effect would have been spread evenly are my thoughts. I think we would have been far better off if we had. I guess that was considered expensive but 50 million people collecting welfare for sitting on their arrssses is a great idea, and probably is very cheap to support?! OKaaayy. Really? I say for self esteem issues alone and the value to themselves, and to our country that we need to get to work on what will be critical going forward. Electricity, energy sources other than imported Oil and transportation like trains. Dummy me I guess.

Let the consumer pick the winners and losers, and get rid of all the bureaucracy that is worthless. Like Government itself and let the States run things for a while, and run representatives in to Washington to vote on issue their constituents find appropriate, and then get them back home quick before anyone can get their paws on them and take them out to a strip club or some darn place.  

OT: I seen my first Robin (that's our State bird) yesterday and it is the earliest I have seen a Robin in Michigan in my lifetime. Last year was the earliest when I seen one, actually several on Feb 6th, the previous earliest date. So I predict another very early spring here in Michigan. I love it except, I have all this information from a much beloved Mark Cochrane in my head, and I really wish he would be a part of a future Podcast. I am dying to hear what he sounds like, his sense of humor and above all else his adventures.

Note: Folks I normally do a lot of reading and research. Well I hurt my eye again, had surgery, and reading is difficult but I can type really fast ,and I have a spell check. I also have lots and lots of energy, always have, and I have stuff to say, muse upon so hopefully you don't mind. I basically write to have others rip apart my thoughts so I can learn. I don't really care if you do or not I just need to do this for whatever reason. I feel confind as I can't do anything to get my energy out so…Just listen you'll understand.

http://www.youtube.com/watch?v=6MdpuupgGHg

Yeah!, like that! LOL

Regards

BOB

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Dude, although the song far preceded the movie, it always reminds me of the Big Lebowski. yes

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…if you don't know this I think you very sensible and intelligent. If I don't comment on what you write all the time just know my head is most always going up and down when you do say something. I was told that no news is good news, and that should mean to you that I value what you say and nothing more needs to be said. Capeesh?Regarding that song: Many a times I heard that while some funny fog drifted about if you know what I mean, wayyyy back in the day.
Be Good
BOB

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Doug, see my chart derived from the quarterly COFER data from the IMF - the same data that you quote from that wiki page, except that I'm using the quarterly data and not the annual data so its a bit more up to date.  Its in the lower right corner of the following page:http://mdbriefing.com/hyperinflation.shtml
Note that in order to make the numbers align with the table you showed me, I had to use "allocated reserves" instead of "total reserves".
It doesn't appear we're losing reserve currency status at the moment.

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Hi Concobb2,You have hit upon a very crucial point that I think is absent from the discussion of why the US dollar is able to retain its reserve currency status. Playing the global policeman has benefited many countries and allowed them to prosper from the stability offered by that security.
This line of thinking is outlined well in a book called The Next 100 Years by George Friedman. I have mentioned it before here, but is worth mentioning again. It provides an interesting geopolitical perspective which helped me to put together a few things about why things have evolved the way they have. (Friedman also has another book, The Next Decade, which is a great read as well. It is big picture geopolitcal stuff that certainly gives one an easy to understand peek into the whys behind foreign policy decisions)
One of the biggest points Friedman made was pointing out how the US domination arose out of its unrivaled ability to control all of the oceans and the critical shipping lanes. If the US does not want a ship to go somewhere, it will not go there. The ablility to enforce blockades or allow free trade at US discretion is huge power.
Geographically speaking, the US is gifted by having a strong presence on both the Atlantic and Pacific. Taking its cue from Britain, who was once the world's dominant naval power, the US built up a most formidible naval force, one that remains un-matched anywhere. By comparison, Russia and China are largely land-locked, with far less exposure/access to all important coastal water. It is for this reason that many believe the US will continue to dominate for a long time. China is struggling to build a rival naval force but it is unlikely they will be able to overcome the restrictions placed on that navy by the limited coastal exposure they have. Russia, in the long term, is not considered to be much of a player in this regard.
Friedman likened the US at this point in time to a teenager who is not all together certain or comfortable with its global role, and at times, makes ill-conceived decisions without thinking of the long term ramificatons. The "war on terror" is a good example. He talked about denial of Empire status, which I think is really valid. But like all teenagers, he hypothesized that the US will mature into a strong and solid global power once it gets past the growing up phase and truly embraces the idea of being an Empire. In between now and then are the growing pains (and mistakes) of accepting its role, and understanding better the strategic importance of its foreign policy decisions.
To use the navy as an analogy, in the short term for sure there are choppy seas and no doubt a few mines that will explode here and there. Some ships might go down, with others taking on water and listing badly, in spite of mad bailing (while some captains are wining and dining - hello Costa Concordia!). Unlike a cruise ship, this navy has huge depth. There is not just one ship, but many, with a backbone of service people like none other. Once the distress signal is truly recognized for what it is, the ships will be righted, and they will learn that you can't play around with responsibility for the helm when you are in charge.
The big questions are, when are they going to see the distress signal and when are they going to grow up?
Jan
 

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Jan,
I read somewhere that a nation-state taxes its own citizens to provide services and that an empire taxes the citizens of other nation-states to provide services at home. We coerce other nations to hold dollars and/or dollar equivalents. The seignorage (difference between face value and cost to produce) is a tax. They had to provide goods and services to receive those dollars. They even have to provide something or we won't give them foreign aid. Granted that these countries can sell the dollars back to us at face value, but that could be considered an act of war.

Ironically, only a debtor nation can have reserve currency status. Our most important export is the currency that greases the transactions between other countries. Can China perform this function? Is China in any position to change from a manufacturing center to a consuming center when their people currently save as much of their meager salary as they do? China has millions of people clamoring to find low paying jobs. Until they have more economic stability, they won't change. Can Germany or Japan step up to the plate? Is there any other country even close here? Is there enough gold in the world to do this without causing the price to spike by an order of magnitude?

As long as our military is the biggest bully on the block, these relationships will continue. The war on terror was concocted in order to justify spending as much as we do on our military. How else could any sane debtor country afford to spend nearly half of the world's military expenses? Are we really bringing democracy to these countries or just flexing our muscles? The threat of bringing democracy would have a sobering effect on any dictator, wouldn't it?

We receive benefits like an empire, we covertly act like an empire, but we don't admit we're an empire. Aren't actions louder than words?

Grover

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Grover,I am with you, and yes for sure, actions speak louder than words.
There are simply no other nations who have the financial clout to take over the role as reserve currency holder supreme. But that does not mean they won't try to weaken the power of the US in this regard. We are witnessing it now in the various deals that have been struck between certain countries to trade amongst themselves. Someone said on one of these threads a while back that holding reserve currency status does not have to be an all or nothing proposition. I think what we will see is the continuation of the US in that role for the majority of the world, with lots of little side deals made here and there to try to gain whatever benefits can be had. This ties in with the view point that we are in for a long, slow burn economically speaking, as opposed to a sudden implosion and dollar collapse. As long as the US is still the best horse in the glue factory and the biggest bully, the dollar will soldier on as the facilitator of global trade.
For sure China has aspirations in this regard, but like you said, they are first and foremost a nation of savers. I do not see that changing any time soon as their massive population has no social safety net or healthcare the way we do in the first world (even if our systems are broke and under-funded; in priniciple they still exist and bring peace of mind as a safety net). They also are facing a demographic timebomb, which is exacerbated with an overabundance of males without spouses due to their one child policy and the resulting female infintacides. These two facts are game changers.
I submit that if we had no food stamps, welfare, healthcare, medicare, unemployment insurance, old age security and so on, we would be far better savers and money managers than we are. As it is we have been completely spoiled by the combination of bloated government spending and financialization. There will be a price to be paid as we come down off of the spendthrift mountain.
Great input from you, thanks Grover.
Jan

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Jan,

I'm imagining a couple of lovesick banksters who can't give up on each other's love of power. Thanks for the visual image!

I can't help but believe that all of those "benefits" were designed by our would-be leaders to enslave us (in both our countries.) We have rewarded them well. We elect politicians who offer the most lucre as long as it can be bought by anyone else. I've found that most people have fallen for the trap because it doesn't feel like a trap.

I don't dismiss the possibility of a sudden implosion and dollar collapse, but that isn't the likeliest scenario. I see the demise as a stair step financial crashcade. 2008 was the first major step down. Were it not for the government borrowing and spending, we'd be neck deep in deflation and default. That would be a game changer and relegate the money handlers and their purchased politicians to their proper position in society. They will do whatever they can to prolong the game.

Just as the price of gold and silver has been allowed to trickle upward, other countries have been allowed to utilize their own currency for limited mutual trade. It is when the threats to the current system are too extreme that military actions are sanctioned. Saddam Hussein violated the line by selling oil in euros. Moammar Gadhafi wanted to institute a unified African currency convertible to gold. Both men are now dead and their countries have been "liberated." <Warning: Speculation> These transgressions must have been viewed as too extreme. Why else did we take action to right these wrongs and yet we allow the senseless slaughter in central Africa to continue? As long as the brutal dictators pay tribute to the system, they can remain in limited power. Look at the House of Saud for an example.</speculation>

We'll likely wallow along as we have been the past few years. It could last a few more years or even a decade. Who knows what event will finally trip the trigger? As long as gold and silver remain repressed, the game will continue. As soon as paper promises to deliver PMs are viewed as being nearly worthless, the current game is over. I expect that to be the final step in the crashcade.

Then, the real heartache begins.

Grover

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Wrt reserve currency status, the size of the currency country's economy plays a big role.  Current projections, though they should perhaps be more accurately described as speculations, are that China's economy will surpass the US economy within roughly a decade.  That's not a long time in economic or national histories.  I assume that the next decade will be very interesting indeed in terms of environmental, geopolitical, resource and economic developments.  As noted in the table I posted above (#30) the USD is currently about 62% of the world's foreign exchange reserves and the Euro (in 2nd place) is about 25%.  Davefairtex provided some interesting data that I have some difficulty interpreting, but in ballpark terms these numbers do not appear to be wildly off the mark.

I also don't know how to figure military power into the evolution of reserve currency status.  Our current sequester projections suggest it wouldn't take too much of a financial disruption to keep large parts of our naval fleet tied up to some dock rather than projecting power around the globe.

There is another wild card to consider that is highlighted in Jim Rickards Currency Wars, in which he engaged in war games exercise.  He and his allies introduced the variable of a gold backed currency created by Russia into the mix.  His premise is far from some wild eyed fantasy as it is clear that China as well as Russia are actively exploring doing exactly that and/or coming to other currency agreements. 

The bottom line is that the future of the USD's reserve currency status is far from secure.  It seems likely that the USD will at least be significantly degraded if not replaced as the premier reserve currency within the next decade.  Grover's scenario of a stair step "crashcade" seems entirely reasonable.  China and Russia actively seeking such an end will be far more difficult to quash than the threats posed by relatively tiny Iraq and Libya.

Doug

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For sure the status of the USD as reserve currency status is far from secure. We can only speculate around the myriad criteria that will contribute to the ongoing maintenance of this status.One factor I tend to view skeptically is the Russian-Chinese collaboration. While they may have some ideological common ground, they both have their own agendas/aspirations; I just can't see them being good or committed dance partners for very long.
Without a doubt China is an increasing economic force, but there are many criteria beyond that which go to making a superpower. A good article discussing the various criteria is found here:
http://apac2020.thediplomat.com/feature/china’s-not-a-superpower/2/
One of the more salient points made in this article, from my perspective, is the idea that a superpower must have "an appealing ideology". At this point in time it is hard to discern exactly what ideology China is following. Regardless of what they may call it, I do not see it as being something that other countries will easily buy into.
The bottom line is we can only make educated guesses as to how this is going to unfold. We do indeed live in interesting times. All in all this is one mother of a global chess game which is at the same time both facinating and scary to watch.
Thanks for the input Doug, your thoughts are always well put together and appreciated.
Jan

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I'm trying to think of another time in history when a fiat reserve currency was adopted by the world. I'm sure there were isolated local dictates, but not globally. The Bretton Woods agreement originally tethered the dollar to gold and allowed the dollar to be the proxy for gold. In 1971, the link to gold was broken, but the world continued to give the dollar special treatment. Is that because of the US economic dominance, the military superiority, the IMF, OPEC oil being sold in dollars, or ???
The reserve currency status has been a privilege and a curse. We literally can print prosperity, but we have also hollowed out our economy as a result. Most of us can see that our best days are best observed through the rear view mirror.

When the world tires of the shameless abuse, why would they willingly substitute another fiat currency and be subjected to the same problems? (Human nature is to secure every barn door after the horses have escaped.) That would mean that any adopted currency will have to have intrinsic value - or it won't be acceptable. Doug noted the rumor of a gold backed Russian currency. Depending on the ease of convertibility, that would do it.

Will the US roll over and accept the inevitable? Why should those in power accept defeat as long as they have any means available to prolong the privilege? If the US were to lose reserve currency status, it will end badly for everyone (including the "elites".) I'm sure that all the major players understand this dynamic.

Grover

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I started following the price of gold & silver in early 2014 after I read David Stockman's latest book - The Great Deformation.  They I found out about Eric King's website and I listened to all of the interviews going back to the beginning of his archive.  Turk may have been correct when the gold and silver market took off and you would have been wise to invest.  But many people like me started paying attention later and Turk's advice since top in 2011 had been wrong. When I listed to those old interviews I am embarrassed for Mr. Turk when he talks about precious metals forming head and shoulders, bottoms, consolidations, etc.  Most especially his calls on silver as it went from the high 40s to under 18 now.
And now the dollar has been getting stronger rather than losing its purchasing power…
I agree that fiat currencies will fail eventually and inflation will come at some point but the fact still remains that Turk and other precious metal bulls have called it wrong going on 3+ years to the detriment of those trusting their predictions.