Page 23 - May-June 2018 GSE Report Flip Book

MONETARY POLICY MJAAYNU- AJRUYNE20210818
• The financial war with Iran will escalate. President Trump has already imposed financial sanctions on Iran that are more stringent that the ones in place for North Korea. This could result in concessions by Iran, but it could also result in pushing Iran into the arms of China as part of a larger global effort to escape the dollar payments system and overthrow the petrodollar agreement of 1974.
• Russia and China may create a new crypto-currency on a distributed ledger, or blockchain, which will serve as a way to keep account of trade balances and capital flows. Periodically those balances could be settled up with a quantity of gold that corresponds to the “gold price” measured in units of the new currency. The dollar would not be part
of these calculations or settlements. The tripling of gold reserves by Russia and China in the past ten years lays the foundation for this. Other nations could join this New Axis of Gold including Iran, Turkey, North Korea, Venezuela and more.
The U.S. could destroy confidence in the dollar itself without a push from other nations. This would most likely be the result of out-of-control deficits and an expanding debt-to-GDP ratio, which already exceeds 105%. With trillion-dollar deficits as far as the eye can see and no restraint on spending, the debt-to-GDP ratio will exceed 110% in a few years and will be poised to surpass Italy not long after that.
An emerging markets crisis is unfolding. It is centered on the inability of emerging markets to pay dollar-denominated debt at a time when U.S. interest rates are rising and the dollar is (temporarily) growing stronger. Argentina, Venezuela and Turkey are the most likely candidates for a catastrophic default, but China, Brazil, Mexico and South Africa are also on shaky ground. Once the crisis begins in one of these countries, the contagion effect will be felt all over the world and a generalized panic will begin.
The major central banks are out of bullets because they have never normalized their balance sheets since the last crisis. Resort to zero-rate policies and quantitative easing will not produce the same effects as in 2008-2015. Citizens will see that the original efforts failed, and only produced a new crisis; therefore efforts to repeat the failed policies will not inspire confidence.
... The task of reliquifying the world will fall to the IMF by default, notwithstanding [former acting managing director of the IMF John] Lipsky’s concerns that the IMF is not geared to respond quickly. The IMF may have no choice. Newly printed SDRs distributed to
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