Data Point: Russia Said to Weigh Capital Controls – Reaction to Sanctions or Signal for War?

The discussions are the latest sign that U.S. and European sanctions are hurting Russia and rethink policies the central bank has sought to avoid. The Economy Ministry last week raised its estimate for this year’s outflows to $100 billion from $90 billion. Russia hasn’t had a net inflow of private capital since 2007, the year after lifted restrictions.” – Bloomberg

Russia considering capital controls simply means people are moving money out of Russia. This may be a sign that sanctions are working, as the media is reporting, or it may be a sign that war is closer and people are moving faster to take sides. Image via dw.de.

So Which Is It? Is the Dollar Strong or Toast?

Conflicting reports in the news today about the current state of the U.S. Dollar. Some say the Dollar is stronger than ever, others say the Dollar is slowly weakening, and still others say the Dollar is about to hit the skids as the BRICS rise.

No matter which narrative you believe, a few things remain true:

  1. The Dollar is backed by the demand for it globally. So as demand shifts, the value of the Dollar us put in a delicate balance.
  2. The BRICS are rising. Sanctions against Russia are dividing the world on East/West lines.
  3. The markets are not necessarily indicative of future trends – only current reactions. So relying on them to predict the future is unreliable. Instead look to larger global trends for making guesses at the future value of things like the Dollar.

What to do?

  • Physical assets, while often heavy and difficult to move, have intrinsic value because they are useful. Food, tools, land, and shelter are things people can use.
  • Monetary metals like silver and gold have historically held value during tough economic times.
  • Skills are also assets, but guessing which skills might have value in the future can be tricky – in easy and tough times. Although skills that people need under any situation are more likely to hold more value like medical, farming, mechanical, building will always find demand.

At the end of the day it’s up to the individual to know how to hedge one’s bets – but waking up to the reality that the new normal is change, a normalcy bias can be blinding, and things like self-reliance is essential for riding through any change.

 

Gazprom Begins Accepting Payment For Oil In Ruble, Yuan

The Nail In The Petrodollar Coffin: Gazprom Begins Accepting Payment For Oil In Ruble, Yuan” – Zero Hedge

What worries me most about this Zero Hedge headline is that most Americans have no idea what this means, not to mention the impact on the value of the U.S. Dollar. If they knew… they’d be buying tangibles with cash and not new cars and luxury items on credit. Historic times we live in.

Houston Chronicle: Why global turmoil hasn’t sunk US markets. Yet.

NEW YORK AP — Europe appears on the brink of another recession. Islamic militants have seized Iraqi territory. Russian troops have massed on the Ukraine border, and the resulting sanctions are disrupting trade. An Ebola outbreak in Africa and Israels war in Gaza are contributing to the gloom…

We’re in a much better place psychologically,” says Mark Zandi, chief economist at Moodys Analytics. “And it’s allowing us to weather the geopolitical threats much more gracefully.” – Houston Chronicle.

This is hilarious… in other words, the vast majority of Americans haven’t figured it out yet – so the American Dollar casinos stay open for global gamblers.

A more poignant question to ask is… what happens if the global gamblers at American casinos decide to move their money to the BRICS?

Putin said the following mid-July:

“The international monetary system … depends a lot on the U.S. dollar, or, to be precise, on the monetary and financial policy of the U.S. authorities. The BRICS countries want to change this.” (source)

I don’t think Putin wants war, but these are the kinds of threats the western powers appear to take very seriously. Clearly the formation of the New Development Bank catalyzed the latest round of chess moves by global leaders.

What’s next is the big question. How far can this go?

This question is what has me blogging on these topics again. Many parts of the world are on fire, but here in sunny California you’d never know it. People are out shopping, playing, BBQing, and swimming in their backyard pools. I see many new cars on the roads, and folks seem genuinely happy, and perfectly content to ignore the fires burning elsewhere. The summer wildfires and drought don’t even seem to be bothering anyone.

So if the trouble comes here, aren’t people going to freak? I also just don’t get why folks seem happy to ignore it all. Where does this apathy come from? Why are they so content to let the central powers run things?

All I can figure is that most folks do sense something is very wrong, but the truth of what’s on the table is so ugly that they purposely ignore as a survival tactic. The other piece might be that folks are so busy acquiring more More MORE, that they just don’t have time to worry about the big picture and how it might affect them. Or maybe folks just figure they can’t do anything more than they are already doing?

I could also be imagining that anything bad could come to America… that would be nice… but I’m afraid it’s more like I’m an early riser.

Photo by Occupy Wall Street.

Very Worried About This UN Vote

In the news we read:

“In the first barometer of global condemnation of Russia’s annexation of Crimea, Ukraine and its Western backers persuaded a large majority of countries in the United Nations General Assembly on Thursday to dismiss the annexation as illegal, even as Russia sought to rally world support for the idea of self-determination.” – United Nations General Assembly Vote Isolates Russia – NYTimes.com.

Instead of rambling on like so many about right & wrong and who we think is more at fault over this Ukraine thing – lets cut to the chase.

Nations around the world are lining up and taking sides on what could turn into a huge global economic split. Pictured below is a quick  yet incomplete look at how the world is splitting apart.

ukraine resolution vote results

I think we can assume that the BRICS are siding with Russia. The BRICS are the rising economic world power, a reality that must really threaten western leaders.

I may be jumping ahead, but if the BRICS chose to stand together and pick some other currency, like the Chinese Yuan, as the preferred currency for international trade, the US Dollar would loose its status as the sole world reserve currency.

What would the loss of the US Dollar’s dominance mean to main street America? 

Technically speaking it would mean that a big chunk of the world would stop demanding dollars. Lower demand of anything results in lower value. When a currency looses value quickly we experience it as rising prices on consumables like food, fuel, and services. If it happens incredibly fast we call it hyperinflation.

Will we see more inflation if the world splits economically in two?

There’s no way to tell because so much reality is papered over by the central banks and government stimulus.

What worries me is that the world leaders seem hell-bent on taking us there. They will blame each other for the mess – when they are all to blame – and the people will end up footing the bill or worse.

So in the mean time I pray they stand down and find some other way to resolve these differences – and buckle up for a rough ride just in case cool heads don’t prevail.

QE3 Strengthens Yuan While Devaluing Dollar

Just to recap, the Federal Reserve is now pumping cash into the money supply at a rate of $40,000,000,000 a month (that’s forty billion) and buying mortgage-backed securities with the fresh cash. These are derivatives (bets) on home mortgage packages.

So in other words these potentially toxic assets (underwater mortgages) are being bought up by the Fed to strengthen the value of mortgages. In other words if the mortgage derivative market collapsed it would likely collapse the value of homes. You might also think of it as the powers-that-be directly protecting and extending our current way of life.

But pumping cash into the U.S. Dollar is the definition of inflation, which can also be described as devaluing the dollar. Understanding this is as simple as understanding supply and demand… the more rare a desirable thing the more it’s value increases. So as the money supply increases the more the buying power of each dollar decreases.

So while the dollar declines the Yuan appears to climb in value, improving the prospects of the Chinese currency becoming a de facto reserve currency. This would crush the U.S. Economy.

China’s yuan climbed Friday to its highest level against the U.S. dollar since the currency was revaluated in July of 2005, buoyed by the U.S. Federal Reserve’s recent QE3 program as well as data this week showing that the People’s Bank of China injected a record amount of cash into the financial system, according to analysts. – MarketWatch.

So on one hand, Washington D.C. is seemingly trying to protect the world’s reserve currency status of the U.S. Dollar by attacking any nation (next up, Iran) that trades for oil with something other than the petrodollar – and on the other hand they print U.S. Dollars wildly, forcing the value of the Dollar down and weakening it’s desirability as a reserve currency.

Why? I don’t now. I won’t go there.

What I do know is that these policies are doing two things that can’t be obscured.

  1. We’re being led to war with Iran and possibly China and/or Russia. Yes a world war.
  2. The U.S. Dollar is at risk of becoming worthless. Why? Paper (fiat) currencies are only valuable because people agree they have value and use them for trade for things that have real value like commodities (food, water, shelter, security, etc). If people (or markets) decided that a currency has low or no value then the commodities themselves would likely become the new preferred form of trade. Gold and silver would also rise in value exponentially in this scenario.

Since I have no idea why the powers-that-be would risk these two things, I simply have to assume that these outcomes are not only on-the-table but increasing in risk daily as the war drums beat in Washington D.C. and the Fed’s presses roll.